A recent report found that corporate clients use Alternative Fee Agreements (AFAs) more often on Intellectual Property matters than any other practice area. The report provides that clients rely on AFAs for 37 percent of their IP legal spending versus 22 percent in other practice areas. Generally, there are three types of clients who favor AFAs: (1) those who need certainty in legal expenditures and budgeting; (2) those who want the law firm to share the risk; or, (3) those who lack adequate financial resources.
So what is an AFA? An AFA is any form of lawyer-client fee relationship other than the hourly fee structure. Common forms of AFAs include: the fixed fee; the “hold-back” or bonus fee; and the contingency or partial contingency fee.
Fixed Fee. Under this arrangement, the law firm agrees to represent the client through conclusion of the case or matter in exchange for an agreed-to set fee, regardless of the number of billable hours incurred. The fixed fee provides cost certainty for the client and fee certainty for the firm. The key to a successful fixed-fee arrangement is accurately defining the scope of work encompassed by the fee and fairly assessing that fee.
Examples of possible fixed fee AFAs in the IP area include:
-
Fees for preparing and filing state and federal trademark applications and renewals
-
Fees for preparing and filing foreign trademark applications and renewalsFees for handling the payment of patent maintenance fees and annuities
-
Fees for handling inter partes proceedings in the U.S. Patent and Trademark Office (USPTO) including proceedings before the Trademark Trial and Appeal Board (TTAB) and the Patent Trial and Appeal Board (PTAB) of the USPTO, e.g., the TTAB has rules for accelerated case resolution that can be used in connection with AFAs.
“Hold-back” or Bonus Fee. This arrangement can take on several forms. Under one common form, the client agrees to pay the law firm an agreed-to percentage of the firm’s standard hourly rate throughout the case or matter. The balance of the hourly fee is “held back” by the firm until conclusion when it is determined what, if any, additional amount will be paid to the firm. Depending on the results, the firm would be entitled to a bonus ranging from $0 to a multiple of the held-back fee. The bonus can be linked to objective criteria or left to the subjective discretion of the client. This type of bonus fee can be used in plaintiff cases when non-monetary recovery is requested, e.g., injunctive relief, and in defense cases and certain transactions. In the IP area, bonus fee AFAs are most commonly used in litigation, including inter partes proceedings in the USPTO.
Contingency Fee. In a pure contingency fee arrangement, the client only pays the law firm a fee if the agreed-upon result is attained, i.e., all-or-nothing. The purpose behind the arrangement is the sharing and allocation of risk between the client and the firm. With limited exceptions, the contingency fee is utilized in the representation of a plaintiff seeking monetary recovery or a defendant seeking such relief through a counter-claim. The percentage of recovery can be a single percentage, tiered percentages based on time or amount of recovery, or tiered percentages attached to tasks achieved through the litigation. A partial contingency fee allows the client and firm to manage their relative risks through a reduction in the percentage of recovery in return for a non-risk discounted hourly fee. Contingency fee AFAs are available in IP litigation when monetary damages are sought.
