U.S. Contingency fees - A level playing field?

• Author: William R. Towns
• Position: Partner and General Counsel at Novak Druce + Quigg LLP
• Pages: 3-5

3

1 Paul M. Janicke,

University of Houston

Law Center and Lilan

Ren, University of

Houston, “Who Wins

Patent Infringement

Cases?,” American

Intellectual Property

Law Association

Quarterly Journal,

Vol. 34, p. 1, 2006

2 See, e.g., Economic

Analysis of the Law 615

(7th ed. 2007), Richard

A. Posner

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U.S. CONTINGENCY

FEES – A LEVEL PLAYING

FIELD?

ly to the efforts of

lawyers working on a

contingency fee basis

to increase the return

on their investment.

Detractors of contin-

gency fees decry the

oft-stated goal of im-

proving access to the

legal system as mis-

leading, claiming that contingency fee arrange-

ments are motivated by greed and encourage ex-

cessive, speculative or frivolous litigation. After all,

contingency fee arrangements also finance litiga-

tion of upper-income and business clients that

could easily afford to pay on an hourly basis.

Controversial or not, there is no question that the

use of contingency fee arrangements in U.S. civil

ligation has become widespread, expanding well

beyond the confines of tort law. In a number of

other contexts, contingency fee arrangements

have proven an effective means of spreading risk,

not only for litigants with resource or liquidity

constraints, but also for the well-financed. This in-

cludes IP matters, and particularly patent in-

fringement lawsuits, where the substantial litiga-

tion costs for both sides may be as significant an

influence on the outcome of the case as the mer-

its of the claim itself.

The high cost of patent

litigation

The high cost of patent litigation in the U.S. is a

major factor contributing to the use of contin-

gency fee arrangements. According to a 2009

economic survey commissioned by the American

Intellectual Property Law Association (AIPLA), in

patent infringement cases where the amount in

dispute is between $1 million and $25 million, to-

tal litigation costs average in excess of $3 million,

roughly 60 percent of which is incurred during

discovery. In cases where the amount in dispute

exceeds $25 million, average total litigation costs

A study of the results of patent litigation at the

appellate level revealed that patentees only won

some 25 percent of infringement cases from 2002

to 2004.1While these statistics might seem to

suggest that the scales are tipped in favor of de-

fendants, the eye-popping cost of patent litiga-

tion in the United States – on average $3 to $10

million – can deter many accused infringers from

fighting cases in court; it may just be less expen-

sive to pay a licensing fee or royalties than to

challenge a patent in court. At the same time,

plaintiffs increasingly have turned to contingency

fee arrangements to spread the risk of such esca-

lating patent litigation costs, a development that

has led some to assert that the scales are now

tipped decidedly in favor of plaintiffs.

Contingency fee arrangements have become a

standard practice in the U.S. for financing certain

types of civil lawsuits. Under such arrangements,

attorneys’ fees are determined by the success of

the claim, and usually are calculated as a percent-

age of the client’s recovery. A fee is charged only

if the lawsuit is successful or is favorably settled

out of court – a “no win, no fee” arrangement.

Often used in personal injury, medical malprac-

tice and commercial collection cases, contin-

gency fees have been widely associated with

large jury awards and recoveries and, as a result,

have become a focal point for advocates of tort

reform. But they have actually been around for at

least 100 years, long before the onset of the cur-

rent liability crisis. Significantly, U.S. jurisdictions

generally eschew “loser pays” systems that permit

successful litigants to recover attorneys’ fees from

the losing party. Proponents of contingency fee

arrangements observe,

inter alia

, that they im-

prove access to the legal system by enabling

plaintiffs with limited financial means to obtain

legal services they could not otherwise afford. 2

Critics of contingency fee arrangements, on the

other hand, often attribute the recent “litigation

explosion”– the expansion of tort liability – large-

This article by William R. Towns, a partner and General Counsel at Novak Druce + Quigg LLP, focuses on

contingency fee arrangements in the context of patent litigation in the U.S. Mr. Towns is a seasoned at-

torney and mediator whose litigation and dispute resolution practice concentrates on IP matters. He is a

WIPO Approved Neutral and has served as a WIPO Domain Name Dispute Resolution Panelist since 2003.

The eye-popping cost of

patent litigation in the U.S.

– on average $3-$10

million – can deter many

from fighting cases in

court.

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