Thursday, March 8, 2012

Contingent Fee Representation - Patent Litigation Will Never Be the Same

Professor Kayton once explained to us that whether a patent is litigated has nothing to do with whether it is strong or weak, but is based on the expected return = probability of success in patent litigation multiplied by the total amount produced if the litigation is successful. Thus, if the damages for patent infringement is $100M and the probability of the holding the infringer liable is 25%, it is rationale to spend up to $25M to enforce the  patent. Of course, not many companies are prepared to spend that much money.

However, some attorneys realized they could make enormous sums as long as one could stomach the risk and venture their time to take cases on contingency: If I lose, you don't owe a thing (i.e., costs and legal fees); on the other hand, if I win, you pay me a percentage, for example, 35% of the damages.

Contingent fee representation changed things. Now a range of patent owners had access to the courts as long as they could convince an attorney to handle their case. Success stories drove attorneys to take cases on contingency. In 1998, I met one of the early successful contingent fee litigators, Gerald Hosier, who represented Lemelson in the 1980s and 1990s. As we sat in the conference room, Mr. Hosier received call after call interrupting our meeting (presumably the calls wasn't staged for our benefit) from Silicon Valley companies who had decided it made sense to settle rather than risk paying for infringement of  Lemelson's complex labyrinth of patents (e.g., assembly line manufacturing, bar coding, and local oxidation of silicon, so-called LOCOS).

Mr. Hosier was wealthy when we met that day, and Silicon Valley was his third "gig." He had reached a settlement with the Japanese companies in the 1980s then the US auto industry. Mr. Hosier appeared on the cover of the American Lawyer tramping through the snow with his huskies in Aspen Colorado. Yes, he had a Gulfstream jet and had earned more than the Cravath Swaine & Moore law firm one year. Yet something was missing as Mr. Hosier gleefully recounted how Mr. Lemelson conceived LOCOS while watching a space capsule re-enter earth's atmosphere. It was impossible to believe. I decided coming out of that meeting I should help clients understand the nature of the Lemelson patents, but before I could write the opinions, nearly all of the companies had settled and returned to business.

Also see Schwartz The Rise of Contingent Fee Representation in Patent Litigation.

Copyright © 2012 Robert Moll. All rights reserved.