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Nine alternatives to the billable hour

With in-house counsel under pressure to rein in legal budgets, outside firms are increasingly being asked to offer corporate clients alternatives to the traditional model of the billable hour.

At yesterday’s session, The Finances of Litigation: No Accounting Degree Required, speakers discussed a variety of alternative fee structures for trademark litigation.

Panelists agreed that presenting a client with a detailed plan outlining the potential costs of various possible outcomes is essential. Joshua Burke, Senior Trademark and Copyright Counsel at General Mills, said this should include an assessment of the best and worst case scenarios, as well as a step-by-step breakdown detailing the cost of possible developments along the way.

“All these things are moving targets but it’s important to discuss what kind of damages you are anticipating,” said Basil Imbruglia, Senior Managing Director of FTI Consulting. “It’s important to make sure you understand what kind of case law there is.”

For example, lawyers should assess what kind of claim they will make on behalf of the client. If the claim is made on the basis of lost profits, communication will be needed with business people about how the company performed compared to the industry. Making a claim based on disgorgement could be far more difficult, said Imbruglia, and require a lot of costly discovery.

A fee structure might also change as the matter progresses. “A lot of times, we have provided clients with options,” said G. Roxanne Elings, a partner of Davis Wright Tremaine. “As the case goes on you may need to have discussions with clients about whether they want to change the type of billing. Clients seem to like that.”

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Panelists suggested nine alternatives to normal billable hours

Fee caps: Hourly rates charged up to a maximum point. This limits the client’s risk but has the potential to be disastrous for the outside law firm if unexpected complications arise.

Fixed fees for single engagements: One set price for a specific matter, regavrdless of the time it takes. “These arrangements are risky for both sides because it could go either way,” said Imbruglia.

Portfolio fixed fees: A single price for a large number of matters. Involves risks to both sides for the same reasons as fixed fees for single engagements.

Fixed fee menus: An a la carte menu of fixed fees for specific types of services.

Retainers: The client agrees to pay a set monthly fee for specific services.

Full contingencies: Fees depend entirely on success. This may appeal to clients who lack the financial resources to pay for litigation. However, the outside firm assumes all the risk, and even if a case looks “like a slam dunk”, the loser may not have the ability to pay any damages awarded.

Partial contingencies: Part hourly rate and part success fees.

Holdbacks: Partial contingency arrangement. For example, a firm might receive 80% of its normal hourly rates while a matter is underway. At the end, it receives the remaining 20% depending on client satisfaction.

Risk collars: Hourly billing arrangement built around an estimated budget for the case. The client pays a bonus if the work is finished under budget and/or gets a discount if the work goes over the budget. This has the advantage of aligning the interests of the client and the outside firm.

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