HOW TO RECOGNIZE THE "PERFECT"
(I.E. "WINNABLE") CONTINGENT FEE CASE
Today only a handful of intellectual property litigation attorneys nationwide try cases on a contingent fee basis. But those few find there is much money to be made from large settlements. The most famous contingent fee inventor, Jerry Lemelson, made himself and his attorney extremely wealthy. Our firm, too, has won several such cases over the past three years, including one verdict for $47 million and, more recently, a verdict for $45 million, which may grow to as much as $90 million with pre-judgment interest -- both to solo inventors. In this article, I will share my observations as to which characteristics make such cases "winnable."
The intellectual property litigation firm that takes contingent fee cases may spend thousands of hours per case, and a significant amount of money for expenses, including disbursements for deposition transcripts, travel, copying, experts, etc. (These expenses can run as high as tens of thousands of dollars to several hundreds of thousands of dollars for one case.) Therefore, the "winnable" case should allow for the recovery of significant damages -- either on a reasonable royalty basis, or in the form of lost profits. The best contingent cases result from situations where the infringer has actually used the infringed product for a long time, so there are meaningful damages, i.e., significant lost profits, to be paid. (In one of our firm's contingent fee cases, the infringed product had actually been used for 10 years prior to the trial!) However, lost profits are tough to get in contingent fee cases if the plaintiff is an individual inventor who cannot afford to manufacture his product and has no licensee to manufacture it. However, if your client has a licensee who both manufactures and sells his invention, then you can seek lost profits so long as other legal criteria are met. The licensee can also share the costs of the lawsuit.
In the best case scenario, the infringing party is also committed to future use of the product. Then you can get past damages, as well as -- either through negotiation or lawsuit -- a licensing agreement to pay for future use of the product. Of course, the infringing party must be able to pay these damages. There is no point in pursuing the best infringement case, if it offers no prospect of reward. (For instance, some companies would not have been able to pay that $40 million-plus we won for some of our clients.) After all, if you can earn your hourly billing rate doing less risky litigation, there is no point in turning down an hourly representation for a risky contingent fee case that will not pay significantly more.
If the case cannot be settled, plan for an extended fight with well-funded defendants who may believe that delay and obstruction are a more meritorious defense than non-infringement. You may have to litigate the case for several years, fighting through numerous obstacles -- like a multi-week deposition of your inventor-client, a kind of interrogation that even police departments aren't allowed.
Payment of disbursements is another practical issue. If the client cannot pay them, your only choice is to advance them. That, of course, is an additional financial burden on your firm, and you cannot undertake many such cases. Of course, any financial arrangement must comply with the pertinent rules of conduct and ethical requirements in effect in your state and court.
Before taking any contingent fee case, carefully examine the patent and file history, because the defendants will assault it every way they can. Were statements made by the inventor or the examiner that can be used by the defendants to construe the claims such that the infringing device is not covered by the claim? If so, is there a legal basis to argue that the statement does not affect the scope of the claim, or is there a credible argument that the claim still covers the accused product?
Just as important as choosing the right case is choosing the "right client." In fact, in a contingent fee case, this is crucial. First, the ideal contingent fee inventor-client must be a convincing witness for the case to be winnable. One wag suggested that the best inventor is a dead one: then you don't have to worry about him! However, juries like to see inventors, and a convincing client who can testify about the overwhelming difficulties the solo inventor faces is really your ace, providing a spark of creativity that the defendants lack, and can only ape.
In addition, the ideal client will be committed to helping you whenever -- and as much -- as necessary, in one or more of the following ways: by acting as an expert; by helping with the collection and production of relevant documents; by helping to review documents produced by the other side; by tracking down information about potential infringers; by helping with responses to interrogatories, etc. So the entrepreneurial inventor just starting a business may not be the best contingent fee client, because the business will take the lion's share of his time, and you will be left paying for experts to make up for his unavailability.
The client must also be decisive, because the window for critical decisions may be narrow. So, if the client is a group of investors in a patent, make sure one person is authorized to make important decisions about filing suit, settlements, and so forth. An uncommitted client is potentially disastrous for a contingent fee case.
Make sure your client is forthcoming. Some clients hold things back, unwittingly or otherwise. Grill your client about sales, public uses, payment of maintenance fees (I've seen Lexis err on this one), and about trade secrets that may relate to the invention. Inventors sometimes feel they must hold something back to protect their best ideas. If they do, immediate best mode and enablement problems may result. All of these will haunt you if they come out for the first time during a deposition.
If you expect to win your case, choose your court well. Courts vary greatly in their speed, and in their willingness to insure that discovery does not become disproportionate to the available resources and issues involved. A courthouse far from your firm's office will require local counsel and perhaps additional travel, thus adding to the expense. At least one fast-track district -- the Eastern District of Virginia, in Alexandria -- has decided that its good work earned it the traditional reward: more work, and therefore instituted a policy transferring cases to other divisions. Rumor has it that the judges of the Eastern District quietly agreed that patent cases would be transferred more often, too. A transfer of a case to another venue on the unannounced ground that a particular district or division has too many patent cases is shaky, but contingent fee plaintiffs cannot afford to fight any procedural battles.
The winnable case must have a strategy. The first step in most cases should
be to attempt negotiation, with a proposal that can be portrayed as benefiting
everyone. As often as not, negotiations will fail. Not all contingent fee cases
that look promising at first can actually be won. Both you and your client must
be prepared to recognize signs that the case is no longer worth pursuing.
Contingent fee litigation is a bit like gambling. It's fun, but risky. Do all you can to improve the odds: real damage, a good client, and a good infringement case. And, as in gambling, don't be afraid to fold if your hand is no good.