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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.

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.

Article: Consider Attorney Fee Litigation When Drafting Business Contracts

September 2, 2019

A recent Daily Business Review article by Noah B. Tennyson, “Consider Potential Litigation Fees, Costs When Drafting Business Contracts,” reports on attorney fee dispute litigation in business contracts in Florida.  This article was posted with permission.  The article reads:

Before you sue someone, it may be prudent to consider potential litigation fees and costs.  This is because, unless your claim arises from a Florida statute or contract that entitles you to recoup attorney fees, each side will bear their own regardless of who prevails.  Thus, you may find that prevailing in court results in the type of victory lamented by Plutarch during the Pyrrhic war: “if we are victorious in one more battle with the Romans, we shall be utterly ruined.”

Ask yourself this question: If I wound up in a lawsuit, would I want there to be a basis for legal fees to be awarded to the prevailing party?  Of course, if you expect to prevail in future lawsuits, then the answer is easy.  But, few truly know what tomorrow brings and simply hoping that your side will prevail in future lawsuits is likely just wishful thinking.  So, to help mitigate the risk of an uncertain future, it may be helpful to consider various legal fee language to insert into some of your business’ most important documents—its contracts.

As a starting place, look at the agreements that you executed with your landlord, vendors, bank, and other parties in order to run your business.  What does the legal fee language say?  Does it provide that any party that prevails in any dispute arising from the contract can recoup its legal fees?  If not, to what extent did your counterpart create an attorney fees clause which favors its side?  Finally, which state laws are to be applied to the contract if there is a lawsuit?

You may have chafed at these terms but signed anyway, perhaps because you saw signing as but one more requirement to get your business up and running.  Whether you signed or not, in your future contract negotiations, consider using legal fee language which may favor your business as opposed to your counterpart’s.  Aside from your own scruples, the limit to how unfair you can be is the reasonable likelihood that a judge will enforce your contract as you intended.

To determine whether a judge will enforce your legal fee language, it can be helpful to look at what Florida courts have decided in the past.  For instance, let’s say your new business is a franchise.  As noted in prior Florida cases, Subway Restaurants (Subway) has written into in its contracts that its franchisee “agrees to pay the cost of collection and reasonable attorney fees on any part of its rental that may be collected by suit or by attorney, after the same is past due.”  In other words, Subway, and only Subway, can recoup its legal fees if they arise from the franchisee failing to pay rent.

This provision appears to be an illicit one-way fee clause which Florida courts have ruled permits either side to seek a fee award, so long as that side prevails in the lawsuit.  Thus, in a dispute between Subway and one of its franchisee Florida stores, the franchisee sought attorney fees from Subway after prevailing in its claim for wrongful eviction.  However, the Florida court ruled that the franchisee’s lawsuit never triggered an entitlement to attorney fees because the legal fee language limited awards to matters involving the collection of rental payments.  Put another way, even if this fee clause were a two-way street, the lanes would still be confined to matters involving the collection of the franchisee’s rent.  Therefore, the franchisee was not entitled to recoup its legal fees even though it won its case.

As seen above, a careful examination of contract language can uncover provisions that might go unnoticed by most, but are duly noted by those seasoned in business disputes.  As another example, contracts made in Florida can be written to have the laws of other states, such as New York or Virginia, be used to resolve disputes.  This might seem innocuous, but the impact can be severe because the treatment of one-way attorney fees clauses varies from state-to-state.

In one Florida case, stockbrokers put into their brokerage agreement that New York law would govern the agreement’s terms.  The agreement also stated that stock purchasers who signed it in order to purchase stock would reimburse the brokers for any debts owed, which included related attorney fees.

When a stock trading error cost a group of purchasers more than $70,000, the purchasers sued the brokers and won damages totaling $81,500.  Yet, the Florida court refused to award the purchasers their attorney fees even though the agreement’s legal fee clause applied to their lawsuit, and even though Florida law requires a two-way street for such fee clauses.

The Florida court’s reasoning was simple: New York law does not require that one-way fee clauses be made into two-way clauses.  Because New York—and not Florida—law applied, the Florida court had no authority to grant a fee award to the stock purchasers.

You should examine proposed contracts with care because established corporations have legal teams crafting contracts which benefit them.  Bear that in mind if you consider signing.  Conversely, when drafting your own contracts, heed your lawyer’s advice.  Otherwise, you, too, may fall victim to unintended consequences.

Noah B. Tennyson is an associate at Nason Yeager in Palm Beach Gardens.  His practice focuses on commercial and business litigation matters, including commercial foreclosures, business disputes, contract litigation, condominium and homeowners’ association issues, construction defect litigation and employment issues.

Article: Making Attorney Invoices Generic, but Detailed

August 27, 2019

A recent New Jersey Law Journal article by Ursula H. Leo and Jonathan N. Frodella, “Making Attorney Invoices Generic, but Detailed” reports on law firm billing format in OPRA matters.  This article was posted with permission.

Attorney invoices to municipalities and other government agencies are subject to disclosure under the New Jersey Open Public Records Act, N.J.S.A. 47:1A-1 et seq. (OPRA).  The standard OPRA exceptions apply to these “government records,” so custodians must redact all confidential information from them before providing them to OPRA requestors.  Unfortunately, redacting invoices requires attorney review, so taxpayers often incur additional legal fees when attorney invoices are requested under OPRA.  In the private sector, attorneys are encouraged to write billing narratives that capture their work as completely as they practically can, and the use of personal identifiers and descriptions of litigation strategies is standard practice.  However, when it comes to municipal work, more detail is not always the best course, and municipal attorneys should strive to draft their bills as generically as possible while still justifying their time to their governing bodies.

A good exercise to help achieve this goal is to draft every bill as though it absolutely will be subject to an OPRA request (and this presumption is not so far-fetched).  For example, when referring to employee investigations or labor disputes, matters should be described generally and the identities of specific employees and witnesses should not be revealed.  Although it is common for labor and employment attorneys to use initials to describe individuals, this practice should also be avoided since initials often must be redacted, and even the length of redactions or simple redaction errors can jeopardize the privacy interests that custodians are charged with protecting.  Similarly, when describing legal research or other legal work, descriptions should be general and should never reveal litigation strategy.  In addition to reducing legal fees, generic billing helps reduce municipal clients’ overall liability exposure by eliminating the need to make sensitive and timely redactions.

Attorneys must discuss any proposed generic billing styles with their clients to determine acceptable practices and agree to any useful billing conventions.  Even better, municipalities can create their own standards and incorporate them into attorney engagements.  For example, the State Division of Law publishes specific guidelines for outside counsel, including a detailed section on invoice format in which the Division explicitly prohibits “[i]ncomplete or vague charge descriptions” and provides some examples of the kinds of charge descriptions it will not accept.  The Division’s standards might seem at odds with the “generic billing” we are describing, so it is important to emphasize that generic billing is not vague or incomplete billing.  Attorneys can adequately account for their time using robust, detailed billing narratives without revealing confidential information, so long as they maintain awareness of OPRA confidentiality concerns and exercise their creativity.

Ursula H. Leo and Jonathan N. Frodella are attorneys at Laddey Clark & Ryan in Sparta, where they focus their practice on government services.

Article: Are Class Counsel Inflating Hours for Larger Fee Awards?

July 18, 2019

A recent scholarly article by law professors Stephen J. Choi, Jessica Erickson and Adam C. Pritchard, “Working Hard or Making Work? Plaintiffs’ Attorney Fees in Securities Fraud Class Actions, (pdf)” reports on attorney fee awards in securities fraud class actions.  The abstract reads:

In this paper, we study attorneys’ fees awarded in the largest securities class actions: “mega-settlements.”  Consistent with prior work, we find larger fee awards but lower percentages in these cases.  We also find that courts are more likely to reject or modify fee requests made in connection with the largest settlements.  We conjecture that this scrutiny provides an incentive for law firms to bill more hours, not to advance the case, to help justify large fee awards – “make work.”  The results of our empirical tests are consistent with plaintiffs’ attorneys investing more time in litigation against larger companies, particularly when there are multiple lead counsel firms.  Using a difference-in-difference analysis, we show that “make work” increased in cases with multiple lead counsel after the Supreme Court validated a “price impact” defense in the Halliburton II case.  We find a similar pattern with relative efficiency, with more hours per litigation day.  We also find that courts award higher multipliers in cases with pre-litigation observable characteristics that indicate a lower risk of dismissal – and a correspondingly higher probability of settlement – particularly against larger companies.  Overall, our results suggest that plaintiffs’ attorneys are receiving windfall fee awards in mega-settlement cases at shareholders’ expense.