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A Question for Solo Practitioners: Flat Fee or Hourly Rate?

September 11, 2019

A recent New York Law Journal article by Janet Falk, “Flat Fee or Hourly Rate? A Question Solo Attorney’s Question,” reports on which billing method to choose for solo practitioners.  This article was posted with permission.  The article reads:

Attorneys earn compensation by setting fees that are not excessive, according to the Rules of Professional Conduct. (Rule 1.5 (a)).  A lawyer communicates to the client the basis for the fee and expenses, consistent with the scope of representation, of course.  It is up to the individual attorney to determine the amount, the nature of the relationship and whether the fee is fixed or contingent.

For those solo attorneys who previously worked at firms in private practice, the rates for their services were set by firm management, largely based on seniority and experience.  Now, as a solo practitioner, it is time to calculate the amount of the fee, the basis for service and any payment accommodation.

Attorneys have multiple options for fees: hourly, flat fee, retainer, contingency and blended, to name a few.  Consider whether the activities you perform re-occur to the degree that you can accurately predict the time it takes to complete them.  There will be occasions, unfortunately, when you underestimate the activity required.  In anticipation of that possibility, an attorney may calculate an additional percentage as a cushion; alternatively, the agreement may include a clause to submit an invoice for the additional services and time at the conclusion of the work performed.

One advocate of the flat fee arrangement is Patricia Werschulz.  She notes: “I have about 20 different activities which I routinely perform for clients.  Each has its own price structure” for her patent and trademark services at Werschulz Patent Law.

Zara Watkins, who writes briefs for appeals and substantive motions in state, federal and immigration cases at On Point Expertise, also prefers flat fees.  She estimates the time (one hour per page of the brief) and multiplies it by her usual hourly rate.  “If I have to go over my estimate, I send an invoice at the end of the project.”  Werschulz and Watkins extoll the freedom to focus on the matter at hand and the legal analysis, and not track their time in small segments of an hour.

Other attorneys dislike flat fee agreements.  Craig Wolson, who leads Wolson Litigation Support Group with a practice focused on securities, lending and other finance, says: “Clients almost always want a fixed fee or cap fee arrangement, which I try to avoid if at all possible.”  Instead, he works on an hourly fee basis, billed against a retainer, based on his estimate of the time expected to be devoted to the matter that month.  Wolson finds that clients do not accurately anticipate the scope of work or the length of time it will take.  “Unexpected things often come up during the course of the representation, clients often change their mind as to what they want to do after the project begins, and/or clients often ask for more work to be done than they would if they knew they were paying by the hour.”  In other words, clients may receive additional services under the flat fee arrangement and the attorney may earn less than if the same work were billed on an hourly basis.

Another perspective on the hourly rate is that it may be more reliable, both for billing and in terms of the prevailing legal environment.  Craig Dobson, whose practice is focused on ethics and immigration at Dobson Law, says “I often bill by the hour when I represent lawyers on ethics matters.”  In the past, he charged flat fees for immigration cases, “but I am now considering more hourly billing because of the unpredictability of representing clients during the current administration.”

Even though attorneys may dislike tracking the fractional hour, and corporations are known to complain about it, Andrew Berks says “Larger businesses, businesses with experienced in-house counsel, and large organizations generally prefer hourly billing” for his services at Berks IP Law, which focuses on intellectual property, patents and litigation.  Whether on a flat fee basis or an hourly basis, be prepared to raise your rates as you gather more experience in your solo practice.  After logging more than 10 years, both Berks and Werschulz deemed it appropriate to increase their fees, based on their longevity in patent law.

In addition, consider that your own expenses will increase over time and that the market rate of your competitors will also be rising.  Wolson notes: “If I see that other lawyers with similar backgrounds are charging more, I will raise my rates.”  Such an increase in fees may cause some clients to stop using your services; indeed, Watkins lost a few accounts when she raised her rate.  However, she “was able to replace them with other, higher paying clients and do less work for the same amount of money.”

Nonetheless, attorneys may be flexible when advising a client who has a limited budget, on a case-by-case basis, of course.  For example, investigative counsel Charles-Eric Gordon, of the Law Offices of Charles-Eric Gordon, comments: “If a prospective or existing client consults me on a price-sensitive matter, which I believe will be extremely interesting, I may accept less of a retainer and an additional amount on contingency.  I also try to base my fees somewhat on a sliding scale, when appropriate.”

Patent attorney Werschulz has an alternative solution.  “If a client cannot afford my services, I send them to Volunteer Lawyers for the Arts to apply for pro bono representation.  If they truly can’t pay my fees, VLA can make a determination and I will take the case.”  There are attorneys who indicate a degree of transparency in their fee structure.  Berks has a tabular fee schedule “with a list of various services and costs.  I use this routinely as a starting point when clients request costs in advance.  Some people want to see it, especially foreign counsel.”

Payment of fees is yet another issue.  Perhaps, like Watkins and Werschulz, an attorney will require full payment up front, which is consistent with a flat fee agreement.  Others may offer a payment plan, on a case-by-case basis, of between three and 12 months.  Gordon states: “I always make certain to require a retainer of at least half of what I estimate the final fee and expenses will be.”

In addition to accepting payment via the usual credit card, check and ACH, consider online payment services.  Werschulz receives payments through the credit card and e-check services of LawPay.  She also notes that she accepts wire transfers from international clients and, perhaps once a year, is paid in cash.  Berks finds that using Quickbooks and hiring a bookkeeper to manage the service is efficient.  “I want to make it as easy as possible for clients to pay me. Something nice about Quickbooks is the emails with invoices have a payment link that accepts credit cards and ACH payments.”

All in all, the solo attorney has many choices regarding flat fee, retainer or hourly billing; flexibility and transparency of fees; payment plans and receipt of payments.  Based on years of experience, relationships with clients, the legal environment and the competitive market, the fees and payment plan that a solo attorney sets today will likely evolve over time.

Janet Falk is the head of Falk Communications and Research in New York.  She provides media relations and marketing communications services to law firms and consultants.

Judge Applies ‘Average Fee-Paying Client' Test to Fee Request

September 10, 2019

A recent Law 360 story by David Simpson, “Hagens Berman, Cohen Milstein Fee Bid Slammed By Judge,” reports that no client would stand for the “insufficient” way that Hagens Berman Sobol Shapiro LLP and Cohen Milstein Sellers & Toll PLLC explained their billing in a $10 million attorney fee bid that followed a deal in an electronics price-fixing proposed class action, a California federal judge said in a fiery order.

U.S. District Judge James Donato said that the firms’ billing charts provide only an attorney’s name and an associated billing amount, with no explanation of how the billed time was used to help the proposed class members, which bought allegedly price-fixed linear resistors directly from electronics companies like Panasonic Corp.  The charts did not provide the level of detail required, the judge said, but he gave the firms a chance to refile their bid by next month.

“This approach is plainly insufficient under well-established standards,” Judge Donato said.  “No paying client would ever stand for it, and it is a disservice to the class and the court.”  The judge made clear that he is willing to award the firms attorney fees to compensate them for the risks they took and the work they did to reach the combined $50.25 million proposed deals on behalf of direct purchasers over the past year.

“But here, plaintiffs’ counsel at Cohen Milstein and Hagens Berman are in effect asking that they be paid whatever they think is fair, no questions asked,” Judge Donato said.  “That will not do.  The court will not award millions of dollars based on counsel’s and the named plaintiff’s say-so, especially when that money will be taken directly out of the hands of class members.”

The judge also thrashed a proposed order submitted by the firms, calling its “self-congratulatory” language “unwarranted and unhelpful.”  The proposed order described the firms’ results as “exceptional” and lauded the reputations of the two firms, the judge noted.  “Statements like these are better suited for firm marketing materials than they are for orders proposed for the court’s issuance,” he said.

The firms had asked for more than $1.8 million in expenses and requested a $25,000 bonus for named plaintiff Schuten Electronics, according to the fee bid.  Judge Donato said that the request for the named plaintiff bonus was “equally bereft of support.”

The president of the company “simply ‘estimates’ the hours of work he did with no time records or periods of any sort and only the vaguest of descriptions of what his work was,” the judge said. “The court also notes that the proposed award equates to an eye-watering hourly rate of $455 for Schuten, which vastly exceeds anything the court has ever been asked to consider for a named plaintiff.”

In November, Panasonic and three other electronics companies cut four separate deals totaling $25.75 million that would resolve proposed class claims alleging the companies fixed the price of linear resistors used in common electronic devices.

Under the deals, Panasonic would pay $12 million, Hokuriku would pay $2 million, Kamaya would pay $5.25 million and Rohm would pay $6.5 million to resolve the direct buyers' claims.

Soon thereafter, the direct purchasers announced that they had also reached a $24.5 million million deal with Japanese electronic passive components supplier KOA Corp.

Earlier this year, the court granted preliminary approval to both sets of deals.

If granted final approval, the deals would resolve a portion of antitrust litigation launched by direct and indirect linear resistor buyers against electronics companies that was coordinated before Judge Donato in 2015. The litigation accuses the four companies and others of colluding between July 9, 2003, and Aug. 1, 2014, to artificially inflate prices of linear resistors, which are common tiny devices that regulate electricity in automobiles, televisions, cell phones, computers and kitchen equipment.

The consolidated cases are Resistors Antitrust Litigation, case number 3:15-cv-03820, in the U.S. District Court for the Northern District of California.

Article: US Claims Court Grants Fee-Shifting in Patent Litigation

September 9, 2019

A recent Law 360 article by Lionel Lavenue and Benjamin Cassady, “Claims Court Clears Cowebs for Fee-Shifting in Patent Litigation,” report on fee-shifting provision in patent litigation.  This article was posted with permission.  The article reads:

The U.S. Court of Federal Claims may grant attorney fees to certain patent owners who successfully litigate infringement claims against the federal government.  The claims court obtained this authority in 1996 but did not exercise it until March 2019, when it granted Hitkansut LLC $4.4 million in fees on top of a $200,000 damages judgment.

And though more than two decades elapsed before that first fee award, the second followed just three months later.  On June 27, 2019, on the back of a $12.4 million damages judgment, the claims court granted FastShip LLC $7.1 million in fees and costs.  Do these decisions herald a new era of patent litigation at the claims court?  That may be premature.  But it should make patent owners, attorneys and litigation finance companies take notice.

28 U.S.C. Section 1498(a)

When Uncle Sam infringes a patent, 28 U.S.C. Section 1498(a) limits the patent owner’s legal recourse to suit in the claims court for “reasonable and entire compensation” — typically a reasonable royalty.  No matter how egregious its infringement, the government is immune from enjoinder and enhanced damages.

Pursuant to a 1996 amendment, however, “reasonable and entire compensation” includes attorney and expert fees for some subset of prevailing patent owners — independent inventors, nonprofit organizations and entities with no more than 500 employees. (FastShip and Hitkansut both qualified.) For this subset of patent owners, Section 1498(a) presumes the plaintiff’s entitlement to fees.

But it forecloses their recovery in two situations: where recovery would be unjust or where the government-defendant’s position was “substantially justified.”  Before Hitkansut, the government always satisfied the latter exception, defeating the plaintiff-favoring presumption.

FastShip v. United States

The FastShip decision touches on a gamut of Section1498(a) topics in its ranging 34 pages.  Two of the more consequential issues include: litigation financing’s effect on a patent owner’s standing to request fees; and the fee-shifting inquiry’s occupation with prelitigation conduct.

As to litigation financing, FastShip’s receipt of funds from an entity controlled by one of its own counselors of record did not disrupt its standing to requests fees under §1498(a).  One of FastShip’s attorneys, Donald Stout both represented FastShip at critical junctures and managed a company that invested $600,000 in FastShip’s case.

Stout is better known as the co-founder of NTP Inc., the beneficiary of a $612 million infringement settlement from Research in Motion Ltd. in 2006.  Court of Federal Claims Judge Charles Lettow found Stout’s financing arrangement with FastShip immaterial to the plaintiff’s standing to request fees.  To hold otherwise would frustrate Congress’ purpose in enacting Section 1498(a)’s fee-shifting provision: incentivizing the prosecution of meritorious infringement claims against the government.

With standing established, the claims court proceeded to evaluate the government’s position, concluding that it was not “substantially justified,” partly due to prelitigation conduct.  The claims court highlighted some unreasonable government conduct during litigation: presenting expert analysis with errors that ranged from convenient to nonsensical, mischaracterizing an extraordinarily skilled expert as ordinary and misstating the law of enablement.  But the court was particularly concerned with the government’s willful infringement and its unresponsiveness to the plaintiff’s initial administrative complaint.

Specifically, FastShip’s suit originated from its solicitation of a subcontract from a U.S. Navy contractor.  As part of its pitch, FastShip divulged its invention: a semi-planing monohull ship.  Though no subcontract materialized, FastShip soon discovered that the contractor had incorporated its designs into navy vessels.

FastShip filed an administrative claim with the navy; two years of silence followed, culminating in the navy’s two-page, perfunctory denial of wrongdoing.  These actions, supplemented by its questionable litigation conduct, rendered the government’s overall position not “substantially justified,” even though the claims court found the government’s conduct reasonable in other respects.

Patent Trends in FastShip

FastShip and Hitkansut may hint at Octane Fitness LLC v. ICON Health & Fitness Inc.'s indirect influence on the claims court.  Moreover, both decisions raise issues, likely to be addressed on appeal, relevant to patents’ status as property — an issue that continues to percolate to the U.S. Court of Appeals for the Federal Circuit’s docket.

With Hitkansut, and now FastShip, the claims court has, like federal district courts, proved amenable to fee-shifting in the patent context.  Federal district courts now shift attorney fees in one-third of patent infringement cases.  That represents a stark increase from, for example, 2011, a few years before Octane Fitness, where the U.S. Supreme Court returned broad discretion to trial judges to determine which cases justify fee-shifting.

Though Octane does not control Section 1498(a)’s fee-shifting provision, the claims court has only now exercised said provision in the post-Octane era.  A prevailing sympathy for fee-shifting in the patent context, marked by Octane, may have influenced these recent claims court opinions.

Yet, FastShip’s impact may be short-lived; the government will likely appeal FastShip, as it has the Hitkansut award.  An appeal presents another opportunity for the Federal Circuit to grapple with one of the more significant questions in the field: Are patents property?

Though recent cases have muddled the question,[16] courts have historically construed the government’s unauthorized patent use as an eminent-domain taking of a license. Section 1498(a), then, supplies “just compensation” to affected patent owners.

Twenty years ago, in B.E. Meyers & Co. Inc. v. United States, the claims court reasoned that the government cannot be punished for taking — willfully or otherwise — that which it has the authority to condemn.  Recognizing the government’s authority to take a patent license, Meyers held that the willfulness of a lawful taking can never justify punitive fee-shifting against the government.

FastShip and Hitkansut, of course, implicitly rejected that theory — willfulness supported both awards.  On appeal, the government will likely argue, as it did at trial, that the claims court’s substantially justified inquiry should have ignored any prelitigation conduct, including the nature of the government’s infringement.  The Federal Circuit, thus, has an opportunity to affirm the Meyers theory and its underlying premise that patents are property subject to eminent domain.

The court, however, has more attractive vehicles for resolving this issue, including recently docketed Oil States Energy Services LLC v. Greene's Energy Group LLC follow-on suits that present the patents-as-property question more squarely.  As cases present this question with growing frequency, the Federal Circuit is poised to definitely resolve it (and likely do so in a Section 1498(a) action).

Practical Implications

In clearing the cobwebs from Section 1498(a)’s fee-shifting provision, the claims court has increased the allure of patent suits against the government — including suits where litigation costs would dwarf potential damages.  Hitkansut’s and FastShip’s vindication of litigation financiers and attorneys operating on contingency in this space will only spur their further participation.  And the awards give leverage to licensors negotiating with government agents and contractors.

That said, fee-shifting under Section 1498(a) only benefits the three named classes of patent owners: independent inventors, nonprofit organizations and entities with no more than 500 employees.  Hitkansut and FastShip supply little obvious insight for larger, for-profit plaintiffs litigating infringement against the government, who cannot recover attorney fees under Section 1498(a) or 35 U.S.C. Section 285.

But, because of Hitkansut and FastShip, the potential value of a patent, held by a large, for-profit company and infringed by the government, surges when transferred to a member of one of the named classes.  Some larger patent owners may thus nonetheless still benefit from a strategic transfer made in the shadow of FastShip.

Lionel M. Lavenue is a partner, R. Benjamin Cassady is an associate, and Regan Rundio is a law clerk at Finnegan Henderson Farabow Garrett & Dunner LLP.

NY Court: Attorney Fees Controlled by Circumstances and Equities

September 6, 2019

A recent New York Law Journal story by Jason Grant, “In Fee Dispute Between Personal Injury Firms in Settled Case, Lower Court’s Award, and Discretion, Stands,” reports that a law firm pursuing a contingency fee dispute against a successor law firm in a personal injury action that settled for $50,000 was rightfully awarded only $1,500 in fees, despite its argument to a lower court that it was “entitled to 40% of the net contingency fee recoverable,” a state appeals court has ruled.

“The issue of apportionment of an attorney’s fee is controlled by the circumstances and equities of each particular case, and the trial court is in the best position to assess such factors,” wrote an Appellate Division, Second Department panel, while citing Rodriguez v Ryder Truck Rental, in an opinion that underscored the trial court’s latitude and discretion in arriving at an appropriate fee apportionment where there is a fee dispute between law firms retained on contingency.

The unanimous panel also noted in the opinion that “’when there is a fee dispute between the current and discharged attorneys for the plaintiff in an action to which a contingent fee retainer agreement applies, [t]he discharged attorney may elect to receive compensation immediately based on quantum meruit or on a contingent percentage fee based on his or her proportionate share of the work performed on the whole case,’” citing Ficaro v. Alexander, quoting Wodecki v. Vinogradov.

In the case before the panel, the originally retained law firm in the underlying motor vehicle accident-based suit, the Law Offices of Andrew Park, moved in March 2018 for a determination of appropriate attorney fees and had “elected to receive a contingent percentage fee at the conclusion of this action,” the panel said.  The firm’s motion came nearly a year and a half after the underlying case, Pyong Woo Ye v. Ebrahem Izak Pasha, had settled.

Panel justices Reinaldo Rivera, Hector LaSalle, Betsy Barros and Angela Iannacci wrote in their opinion that “‘an award of … reasonable attorney’s fee[s] is within the sound discretion of the Supreme Court based upon such factors as the time and labor required, the difficulty of the issues involved, the skill required to handle the matter, and the effectiveness of the legal work performed,’” citing Wodecki v. Vinogradov, quoting Juste v. New York City Tr. Auth.

They added, “Here, Andrew Park elected to receive a contingent percentage fee at the conclusion of this action.  Given the time and labor expended by each attorney in the action, the skill required for the various work performed, and the effectiveness of each counsel’s legal work, we agree with the Supreme Court’s determination to award Andrew Park attorneys’ fees in the sum of $1,500.”

Judge Cuts $3M from $32M Fee Request in $110M Fiat Settlement

September 5, 2019

A recent Law 360 story by Pete Brush, “Class Counsel Takes $3M Haircut as $110M Fiat Deal Gets OK,” reports that a Manhattan federal judge approved a $110 million settlement for Fiat Chrysler investors who sued when the automaker's alleged lies about emissions practices came to light, but he lopped about $3 million from a $32.2 million fee request made by lawyers who brought the class action.  U.S. District Judge Jesse M. Furman, who oversaw the four-year litigation that settled in April, called the recovery for investors "fair, reasonable and adequate," but administered a something of a haircut for plaintiffs' firms representing aggrieved investors in the $27.5 billion automaker.

"Fees in the range requested are less reasonable in a settlement of this magnitude," Judge Furman said, cutting Pomerantz LLP and The Rosen Law Firm PA's requested 30% fee back to 27% and arriving at an award just a hair under $29 million.  "Make no mistake about it, the attorneys in this case will receive a substantial fee.  Counsel has secured a substantial recovery for the class," the judge said.

The settlement proceeds go to investors who bought Fiat Chrysler stock between October 2014 and May 2017.  They claimed the automaker's 2014 filings with the U.S. Securities and Exchange Commission, which said it was "substantially in compliance" with emissions and other safety regulations, were fraudulent.  Beginning in July 2015, according to the investors, Fiat Chrysler's share price began to drop when the misleading statements came to light.  The alleged misconduct cost the automaker $175 million in regulatory fines and subjected it to an expensive recall, according to filings.

Three lead plaintiffs, Timothy Kidd, Gary Koopman, Victor Pirnik, will each receive a $15,000 award on top of their settlement recovery, Judge Furman said.  He also approved roughly $2.6 million in costs for the plaintiffs' firms.  "We're very pleased at the order approving this excellent settlement," plaintiffs' counsel Jeremy Lieberman said after the hearing.  "We look forward to promptly distributing these proceeds to the class."