The Problem with Contingency Fees in Patent Cases
We are occasionally asked to write a letter, file a patent application, or
handle a lawsuit on a contingent fee basis. Our policy is to decline such
requests because contingency fee arrangements are usually unfair to the client.
Suppose a client asks us to write a demand letter for $100,000 on a
contingency fee basis, telling us to keep a third of the proceeds if the letter
results in payment. We could receive a legal fee of $33,333.33 for a letter that
would normally cost about $600.00. It makes much more sense for the client to
pay the small letter-drafting fee and keep the proceeds.
The same logic applies to the filing of a patent application. To avoid a
$7,000.00 legal fee for preparation of a mechanical patent application, for
example, a client may propose that we waive the fee and participate in the
profits derived from the invention. If the invention meets with commercial
success, the client could pay a fee far in excess of $7,000.00.
If the invention is not commercially successful, we have worked for two to
three weeks with no revenue, even though our overhead bills never stop coming
in. We have no control over whether or not an invention meets with commercial
success, because that depends upon the marketing efforts made by the inventor,
not upon the quality of the patent application. Consumers don’t purchase
products because the patent application for the product is well-written. Being
full-time patent attorneys, we can do no more than advise our clients to avoid
marketing scams (see
www.inventorfraud.com) and to seek out the assistance of reputable firms
such as the Jim Moran Institute.
A different reasoning applies to lawsuits. Contingency fee arrangements are
common in personal injury (PI) cases because the only issue in such cases is
damages. The liability is usually clear and most PI law firms will not accept a
case on a contingent fee basis if liability is not clear. Thus, the only issue
in most PI cases is how large the payment will be, not whether or not there will
be a payment. In intellectual property cases, liability is always disputed. An
accused infringer will attack the validity of the patent by citing prior art
that was not cited by the examiner, and will argue noninfringement as a backup
defense. A typical patent infringement suit lasts two or three years and
requires the full-time attention of at least one lawyer. No lawyer with an
office can stay in business without revenue for such a long period of time.
Personal injury cases, on the other hand, are over much quicker and, again, the
only issue is the size of the recovery.
In most cases, we are able to quote a flat fee for our services. This removes
the uncertainty caused by hourly rates. When a lawyer quotes a fee of $300 to
$500 per hour to write a letter or to prepare a patent application, the
inventor’s reply is always “Write fast.” Well, that leads to a letter or patent
application prepared in a bum’s rush. A well-crafted letter, patent application,
or an amendment to a patent application, is best prepared in a relaxed, well
thought out manner. A flat fee protects the client from surprises, ensures a
thorough preparation of the application, and is, we believe, the only fair
alternative to hourly rates and contingency fees.
© 1999- 2017 Smith and Hopen, P.A.
SMITH & HOPEN® and logo are federally registered trademarks.