Brinks Hofer Gilson & Lione Attorney Reviews Contingency Fees as Alternative Billing Arrangements Expand

ANN ARBOR - In the changing legal landscape, law firms are continuing to explore and expand alternative billing options, including contingency fees, that meet the needs of their clients and fairly compensate law firms for their time and expertise. This trend comes at a time when plaintiffs in intellectual property cases, from solo inventors to large corporations, are increasingly asking their attorneys to work for a fee partially or wholly contingent on a successful outcome. Brad Smith, an attorney and shareholder in the Ann Arbor office of Brinks Hofer Gilson & Lione, one of the largest intellectual property law firms in the U.S., has worked on contingency fee cases and sees both benefits and risks for law firms and their clients.

"Contingency fee cases can have very positive outcomes because they theoretically align the interests of both the attorney and the client,” Smith says. “In return for accepting risk, the contingency fee lawyer shares in the reward. But the interests of the lawyer and client may diverge as the case progresses."

Smith advises that each contingency case be considered independently and on its own specific merits, with precautions taken up front.

"An attorney is most vulnerable to a client’s changing objectives after putting in a significant amount of work on the contingency case," Smith explains. “Interview the prospective contingency fee client carefully at the outset. The rules prohibit any engagement letter that restricts the client’s ability to terminate the relationship or accept a settlement, so if the attorney doubts the client’s fortitude, the case should be declined. As with any client, frequent and candid communication concerning case status is imperative. Record important strategic decisions in writing; the earlier the attorney and client learn of diverging goals, the easier it is to address them," affirms Smith.

Smith notes, with some caveats, that a well-written contingency fee agreement will address a total breakdown of the relationship.

"If any of the stakeholders in a case, either the attorney or the client, terminate representation, the attorney most likely holds a lien on the amount the client recovers for the reasonable value of services provided. However, problems arise if the attorney and client disagree on the objective of the litigation, but do not want to terminate the relationship," cautions Smith. "Early in a case, the attorney may favor a quick settlement while the client wants the attorney to continue litigating to get more money. The opposite dynamic can occur as the case approaches trial. The client may want to avoid the risk of trial and settle, while the attorney wants to press forward. If the case settles for a much smaller amount than anticipated, the resulting contingency fee could cover only a fraction of the time and related expenses an attorney or law firm has devoted to the case," Smith explains.

Precautions notwithstanding, a client can still have a change of heart as the case nears trial. Renegotiating a fee agreement, such as having the firm assume more risk and responsibility for the litigation team’s meals, transportation and lodging, may mitigate the client’s fear and financial risk without losing the opportunity to exercise professional judgment in pursuing the best outcome for the client. In some cases, the client’s aversion to risk can be addressed by renegotiating the fee as a sliding percentage, with the attorney earning a lower contingency fee percentage for a smaller recovery and a higher percentage for a larger recovery.

In the unfortunate circumstance where the client rejects the attorney’s advice just before trial, Smith notes a strategic option.

"If the client insists on settling against the attorney’s advice, the attorney should obtain as much flexibility in settlement negotiations as possible. The attorney should also consider involving a skilled mediator to conduct settlement negotiations between the parties, to maximize the recovery and hopefully reduce friction between the client and attorney," Smith adds.

Ultimately, however, the attorney must follow the client’s settlement instructions or withdraw from the case.

"Even if the attorney is highly confident of obtaining a larger recovery at trial, the ethical rules are clear: an attorney must abide by a client’s decision whether to accept a settlement offer," concludes Smith.

Founded in 1917, Brinks Hofer Gilson & Lione is based in Chicago with five additional offices across the country, including Ann Arbor, serving the intellectual property needs of clients from around the world. The firm is one of the largest IP law firms in the country, with 180 attorneys, scientific advisors and patent agents specializing in intellectual property litigation and all aspects of patent, trademark, copyright, trade secret, unfair competition, intellectual asset management, and technology and licensing agreements. Brinks routinely handles assignments in fields as diverse as electrical, chemical, mechanical, biotechnology, pharmaceutical, nanotechnology, Internet and computer technology, as well as in trademarks and brand names for a wide variety of products and services.

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