Earlier this year, a U.S. District Court approved the payment of $308 million in attorney fees to 116 law firms in a single case (TFT-LCD Antitrust Litigation), with one firm receiving $75 million in fees and another receiving $49 million. While that case may be an extreme example, the median hourly rate for partners in U.S. law firms is $625 per hour and the average patent lawsuit requires $2.5 million in attorney fees. Is it any wonder people complain about attorney fees?
Fortunately, by managing litigation effectively, those costs can be greatly reduced. For several years I served as Director of Legal at a multi-billion dollar tech company based in Taiwan and was responsible for resolving all disputes and litigation. Cost-down was our corporate mantra, with every invoice closely scrutinized by management. Below are a few of the lessons I learned.
1. Seek Internal Solutions. Before retaining outside counsel, a company should promptly investigate whether the matter can be resolved internally. Often the business unit, management or in-house counsel can resolve the matter through informal discussions, saving considerable time and costs. For example, we routinely received licensing threats and demands, but disposed of more than 90% without the need for licensing, litigation or outside counsel.
2. Select Counsel Carefully. The key factor in the cost and success of legal representation is the attorney handling the case. Hire the attorney, not the firm. Utilize referrals, past representations, Martindale-Hubbell, and other sources to identify several candidates who appear well-qualified in terms of credentials, experience, practice areas, and so forth. Consider attorneys in smaller firms or lower-cost markets. Contact a few candidates, let them know you are speaking with several firms and ask them to perform a conflict check and notify you of their potential interest.
If they express interest, provide each attorney with a detailed statement of facts and request them to provide certain legal, procedural and financial information, including an opinion on the strength of your case, suggested strategies, potential challenges, responsible attorneys and their rates, expected timeline of events and estimated fees per phase. Be sure to clearly define your goals and expectations. You should receive responses from several attorneys and will have valuable information to help choose the best-qualified. In particular, make sure the attorney you select really “gets it” – understands what is important to your company and demonstrates an ability to handle the case in accordance with those values and objectives.
3. Negotiate Fees. First learn the attorneys’ hourly rates; then demand discounts. As reported in the Wall Street Journal last month, U.S. law firms have raised their hourly rates to record levels, but are also discounting them by record levels, in response to client demands. As described in that article, an hourly rate is basically analogous to the sticker price on a car: it’s the beginning of a negotiation.
While reduced rates help, to reduce risk it is often essential to obtain fee caps, whether per month, per phase, or for the entire case. Attorneys often resist such requests, based on the excuse that litigation is fraught with too much uncertainty. While that may be true, if the client has a legitimate need for certainty, it should insist on counsel finding a way to satisfy that need. Otherwise, alternative fee arrangements may also make sense, such as contingency or low hourly rate with success fee, and the client may wish to explore such options with counsel.
4. Negotiate Terms. The prudent client will insist upon receiving a signed legal services agreement and will negotiate terms to protect its interests, such as the following types of provisions:
• Identify staffing and scope of work
• Describe hourly rates or other fee arrangements
• Require hourly rates to remain fixed for one year
• Requirement for detailed monthly bills
• Prior approval for preparing motions
• Prior approval for substituting attorneys
• Prior approval for expenses over a certain limit
• Economy-class air travel and daily caps on meals/hotel
• No charge for travel time or online legal research
• Prior approval for legal research exceeding a certain limit
• Prior approval before more than one attorney per meeting/hearing
• Prompt notice if it becomes clear a fee estimate will be exceeded
5. Assess Case Early. Engage in frank discussion with counsel about potential strategies, the odds of prevailing at different stages, potential liability (best, worst, most likely) and consider performing a decision tree analysis, or otherwise calculating likely risks and damages, in order to better evaluate strategic options, advise management, plan budgets and calculate reasonable sums to set aside in reserve.
6. Review Invoices Promptly. Promptly review each invoice and discuss with counsel any questions, concerns or objections. Verify that each item is consistent with your records. Problems may relate to vague descriptions; changes in staffing; excessive time spent on preparation, conferences, memos, research or drafting; motions to compel or for sanctions; events that counsel failed to anticipate but should have; and sums exceeding fee caps or estimates. Seek explanations. If charges seem excessive or improper, demand that they be written off or reduced, not just once, but every time an invoice appears questionable. At the very least, just letting counsel know you are reviewing each invoice closely will motivate them to use extra care to work efficiently and bill honestly.
7. Review Strategy Regularly. Strategy may evolve as the case develops and the client should communicate regularly with counsel to ensure that all parties are made aware of any new business or legal developments. Client should clearly instruct counsel that it has no interest in legal procedures for the sake of legal procedures; instead, all actions should be directed towards achieving the client’s objectives in the most cost-effective manner. Motions for early resolution or other purposes should be explored, but wasteful actions unlikely to prevail or to provide meaningful advantage should be rejected. Opportunities for settlement should be explored early and often.
8. Invest in the relationship. Develop a friendship with outside counsel, meet in person, meet socially, show them your facilities, invite them to corporate functions. The better your attorneys understand your corporate operations, culture and personnel, the more effectively they can perform. Good relations are more likely to result in honesty, integrity and trust.
9. Switch Horses if Necessary. If counsel appears to be wasting resources on ineffective legal tactics or strategies, promptly express concerns. Don’t be afraid to suggest switching tactics. While a client should consider counsel’s suggestions and explanations, ultimate responsibility lies with the client. If concerns with the quality or cost of representation persist, don’t be afraid to switch counsel, but consider first whether the problem is truly counsel’s fault, or may arise from unforeseeable external challenges or unrealistic expectations.
10. Evaluate Performance. At the close of each representation, in-house counsel should enter into a database information such as the name and type of case, names of counsel, billing rates, hours billed, total cost and satisfaction with the representation, to help guide future hiring decisions and develop a list of preferred providers.
For a company that just wants to do business, the costs and uncertainties of litigation will always cause great consternation – particularly if the client fails to properly manage and supervise the case. However, by taking the types of steps described above, one can minimize excesses, inefficiencies and uncertainties and keep the matter on track towards the most cost-effective resolution.
Please contact AsiaLaw if you have any questions concerning Managing Litigation.