The Perfect (i.e., Winnable) Contingent Fee Case Revisited

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					                           LITIGATORS CORNER:                                                        infringement. You may have to litigate the
                                                                                                     case for several years, fighting through

The “Perfect” (i.e., “Winnable”)
                                                                                                     numerous obstacles — like a multi-week
                                                                                                     deposition of your inventor-client, a kind of
                                                                                                     grueling interrogation that even police

 Contingent Fee Case Revisited                                                                       departments aren’t allowed.
                                                                                                         Payment of disbursements is another
                                                                                                     practical issue. If the client cannot pay
                                                      The intellectual property litigation firm      them, your only choice is to advance them,
                         BY JOSEPH N. HOSTENY,
                                                  that takes contingent fee cases may spend          or the client must locate investors. That, of
                         OF NIRO, SCAVONE,
                                                  thousands of hours per case, and a signifi-        course, is an additional financial burden on
                         HALLER & NIRO
                                                  cant amount of money for expenses, includ-         your firm, and you cannot undertake many
                         Regular IP Today         ing disbursements for deposition                   such cases. Of course, any financial
                         columnist Joseph         transcripts, travel, copying, experts, etc.        arrangement must comply with the perti-
                         N. Hosteny is an         (These expenses can run as high as tens of         nent rules of conduct and ethical require-
                         intellectual property    thousands of dollars to several hundreds of        ments in effect in your state and court.
                         litigation attorney      thousands of dollars for one case.)                    Before taking any contingent fee case,
with the Chicago law firm of Niro, Scavone,       Therefore, the “winnable” case should              carefully examine the patent and file his-
Haller & Niro. A Registered Professional          allow for the recovery of significant dam-         tory, because the defendants will attack
Engineer and former Assistant US Attorney,        ages — either on a reasonable royalty              every way they can. Were statements made
his articles have also appeared in Corporate      basis, or in the form of lost profits. The best    by the inventor or the examiner that can be
Counsel Magazine, The Docket (American            contingent cases result from situations            used by the defendants to construe the
Corporate Counsel Association), American          where the infringer has actually used the          claims such that the infringing device is not
Medical News, Inventors’ Digest, Litigation       infringed product for a long time, so there        covered by the claim? If so, is there a legal
Magazine and Assembly Engineering                 are meaningful damages, i.e., significant          basis to argue that the statement does not
Magazine. Mr. Hosteny is on the Board of          lost profits, to be paid. (In one of our firm’s    affect the scope of the claim, or is there a
Editors of Patent Strategy & Management (a        contingent fee cases, the infringed product        credible argument that the claim still cov-
monthly publication of American Lawyer            had actually been used for 10 years prior to       ers the accused product? Don’t necessarily
Media), for which he writes periodic guest        the trial!) Lost profits are not likely if the     be deterred, because many attacks I have
columns. Mr. Hosteny can be reached at            plaintiff is an individual inventor who can-       seen are wrong or over-stated.
(312) 236-0733, or by e-mail at                   not afford to manufacture his product and          Nevertheless, you need to know what to
jhosteny@hosteny.com, or by visiting his          has no licensee to manufacture it. However,        expect. No prosecution history is perfect.
web site at http://www.hosteny.com.               if your client has a licensee who both man-            Just as important as choosing the right
                                                  ufactures and sells his invention, you can         case is choosing the “right client.” In fact,
                                                  seek lost profits so long as other legal crite-    in a contingent fee case, this is crucial.

O
       ver the years, I have written several
       IP Today columns about contingent          ria are met. The licensee can also share the       First, the ideal contingent fee inventor-
       fee IP litigation. When I first            costs of the lawsuit.                              client must be a convincing witness for the
addressed the topic in my November, 1998              In the best case scenario, the infringing      case to be winnable. One wag suggested
column, only a handful of intellectual prop-      party is also committed to future use of the       that the best inventor is a dead one: then
erty litigation attorneys nationwide were         product. Then you can get past damages, as         you don’t have to worry about him!
trying these cases on a contingent fee basis.     well as — either through negotiation or law-       However, juries like to see inventors, and a
Today, even some attorneys who once criti-        suit — a licensing agreement to pay for            convincing client who can testify about the
cized the practice are now trying cases this      future use of the product. Of course, the          overwhelming difficulties the solo inventor
way. While it must be pointed out that not        infringing party must be able to pay these         faces is really your ace, providing a spark
all contingent fee cases are “big winners,”       damages. There is no point in pursuing the         of creativity that the defendants lack, and
those of us who try IP cases on a contingent      best infringement case, if it offers no            can only ape. (Anyone who says that patent
fee basis find it worthwhile.                     prospect of reward. (For instance, some            cases are dry and dull hasn’t tried one on
    The most famous contingent fee inventor,      companies would not have been able to pay          behalf of an individual inventor or a small,
Jerry Lemelson, made himself and his attor-       the $40 million-plus we won for some of our        entrepreneurial company!)
ney extremely wealthy. Our firm, too, has         clients.) After all, if you can earn your              In addition, the ideal client will be com-
won several such cases over the past ten          hourly billing rate doing less risky litigation,   mitted to helping you whenever — and as
years, including one verdict for $47 million      there is no point in turning down an hourly        much — as necessary. Beware the contin-
and, another for $45 million — both to solo       representation for a risky contingent fee          gent fee client who expects you to do all the
inventors. Many attorneys have asked me           case that will not pay significantly more.         work, including obtaining their patents and
how to tell if a case is worth taking on a con-       If the case cannot be settled, plan for an     figuring out why their patent was infringed.
tingent fee basis. In this column, I will again   extended fight with well-funded defendants         Try not to work with such clients. A contin-
share my observations as to which charac-         who may believe that delay and obstruction         gent fee case with an uninterested,
teristics make such cases “winnable.”             are a more meritorious defense than non-           uninvolved client is not necessarily

20                                                INTELLECTUAL PROPERTY TODAY          JULY, 2005
doomed, but it will be much more difficult       unwittingly. Grill your client about sales,      contingent fee cases that look promising at
to litigate, and the disbursements (which        public uses, payment of maintenance fees         first can actually be won. Both you and your
you may be advancing) will be much               (I’ve seen Lexis err on this one), and about     client must be prepared to recognize signs
higher.                                          trade secrets that may relate to the inven-
                                                                                                  that the case is no longer worth pursuing.
   On the other hand, a committed and            tion. Inventors sometimes feel they must
enthusiastic contingent fee client can be a      hold something back to protect their best        That’s one of the reasons to avoid billable
huge asset in many ways, including by act-       ideas. If they do, immediate best mode and       litigation. There is a tendency to keep the
ing as an expert; helping with the collection    enablement problems may result. All of           meter running. Contingent fee cases don’t
and production of relevant documents;            these will haunt you if they come out for the    suffer from that problem.
helping to review documents produced by          first time during a deposition.                      To borrow from the lexicon of Balkan pol-
the other side; tracking down information            If you expect to win your case, choose       itics, an exit strategy is necessary. If a law-
about potential infringers; helping with         your court as well as you can, as allowed by
                                                                                                  suit results, you and your client must have
responses to interrogatories, etc. So the        jurisdiction and venue. Courts vary greatly
entrepreneurial inventor just starting a         in their speed, and in their willingness to      thought beforehand about how far to go with
business may not be the best contingent fee      insure that discovery does not become dis-       the suit, and whether (and when) to stop. For
client, because the business will take the       proportionate to the available resources and     example, you may want to pursue discovery
lion’s share of his time, and you will be left   issues involved. A courthouse far from your      in a software copyright case long enough to
paying for experts to make up for his            firm’s office will require local counsel and     get source code and evaluate the infringe-
unavailability.                                  perhaps additional travel, thus adding to
                                                                                                  ment. If the infringement is weak, then the
   Some contingent fee clients don’t want        the expense. At least one fast-track district
to make any financial contribution at all.       — the Eastern District of Virginia, in           case may no longer be worth pursuing.
But one of our best clients was an inventor      Alexandria — has decided that its good               Contingent fee litigation is a bit like
who paid us $100 every month like clock-         work earned it the traditional reward: more      gambling. It’s fun, but risky. Do all you can
work. In addition, she even sent us a very       work, and therefore instituted a policy          to improve the odds: real damage, a good
kind note with every payment. It isn’t a         transferring cases to other divisions. Rumor     client, and a good infringement case. And,
reach to say that those of us who worked         has it that the judges of the Eastern District   as in gambling, don’t be afraid to fold if
with her were dedicated. (By the way, her        quietly agreed that patent cases would be
                                                                                                  your hand is no good. IPT
case turned out extremely well.)                 transferred more often, too. A transfer of a
   The ideal client must also be decisive,       case to another venue on the unannounced
because the window for critical decisions        ground that a particular district or division
may be narrow. So, if the client is a group of   has too many patent cases is shaky, but con-
investors in a patent, make sure one person      tingent fee plaintiffs cannot afford to fight
is authorized to make important decisions        any procedural battles.
about filing suit, settlements, and so forth.        The winnable case must have a strategy.
An uncommitted client is potentially disas-      The first step in most cases should be to
trous for a contingent fee case.                 attempt negotiation, with a proposal that
   Make sure your client is forthcoming.         can be portrayed as benefiting everyone. As
Some clients hold things back, usually           often as not, negotiations will fail. Not all

                                                 INTELLECTUAL PROPERTY TODAY        JULY, 2005                                                21