Saturday, September 6, 2008

Business Law: Contingency Fees for Litigation

You can see my earlier articles on flat fees here (and here and here), but I have not written about contingency fees in business litigation.

I only learned of Contingent Fee Business Litigation this past week. I got a chance to look at this and found Lawsuit Defense Through A Contingent Fee and Benefits Of The Contingent-Fee Agreement.

The second article has a good description of contingency fees:

Under a typical contingent-fee agreement, the "contingency" is usually the recovery of money, or something of value, for the client. If that contingency does not occur, the client owes the attorney nothing for his effort. The obvious benefit to the client is that he or she does not have to incur an out-of-pocket expense for attorneys’ fees. This may be particularly valuable to a client who does not have the ability or desire to pay an attorney by the hour to advance the client's case.
The post also a short, pointed examination about how a contingency fee benefits the client.

From Contingent Fee Business Litigation's Lawsuit Defense Through A Contingent Fee I learned of Blawgletter. This blog tags itself as dealing with contingent business law. Blawgletter's How to Negotiate a Reverse Contingent Fee describes the method for negotiating a reverse contingency fee.
By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage -- 40 percent, say -- of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment. If we zero out the plaintiff, our fee totals $4 million -- .4 x ($10 million - $0) = $4 million.
The article also describes some of the problems of a reverse contingency fee:

Negotiating an RCF presents unique challenges. The hardest part probably is arriving at the benchmark number. The law firm will want to use the plaintiff's demand as the starting point, but the client will prefer to begin at bupkes. Unless some reliable methodology for assessing exposure exists, the discussions may lead nowhere.

A second barrier to negotiating an RCF results from the fact that the client must come out of pocket to pay the fee. Fortune 500 companies can do that, but smaller enterprises may lack the necessary liquidity. A letter of credit or other security could bridge the gap.

Lawsuit Defense Through A Contingent Fee describes how a reverse contingency fee operated in the real wold.

By the way, I suggest business lawyers check out both of these blogs.