Contingency Fees Driving Trend in Commercial Litigation

Article from Missouri Lawyers Weekly that quotes The Simmons Hanly Conroy’s Paul Lesko.

Lawyers respond to small-business clients’ limited budgets

Paul Lesko practices intellectual property litigation at Simmons Hanly Conroy in East Alton, Ill., where a great majority of the firm’s cases are also handled on a contingency basis. Similar to commercial cases, he says, one of the biggest advantages for IP litigation is the ability to represent clients that could not have their cases heard otherwise.

“Numerous small companies and individual inventors may have sufficient resources to run their business, conduct research and development, produce a product line and obtain a patent or two. But due to their smaller size, they do not have the resources to fight a protracted patent suit — which could last many years and, if billed on an hourly basis, could easily exceed a million dollars,” Lesko said. “For these clients, a contingency-fee arrangement is the only way that their meritorious cases can be heard.”

Another advantage to such an arrangement, Lesko says, is that it builds a closer attorney-client relationship because both are taking a risk, thereby forging a joint partnership. “This allows the client more freedom to discuss the case with the attorney — without fear of being billed for each telephone call — and allows a lawyer to take all steps he believes are necessary to win the case — without fear of the client second-guessing whether such actions were necessary or were steps simply taken to bolster the monthly bill,” he said.

But contingencies do not come without their pitfalls. One of the disadvantages, Lesko says, is that a victorious client does not always mean a victorious law firm.

“In a billable-hour system, law firms are compensated whether they win or lose,” he explained. “In a contingency-fee arrangement, care needs to be taken in order to ensure that if there is a victory, everyone — the client and the law firm — comes out ahead. While it is always gratifying to win a case, if the judgment does not exceed the costs of the case, the case may have been a bad business decision.”

“Everyone working at the firm has to enjoy a bit of risk — not be paralyzed by it — and most importantly, everyone has to be a winner — not just a worker,” he said. “Moving from a pure billable-hour firm to a contingency-fee firm is a step that most people cannot make due to the uncertainty inherent at such a firm. At a billable-hour firm, everyone knows that so long as there is work, they will do well regardless of the outcome.

“At a contingency-fee firm, simply working is not enough. You have to win,” he said. “Therefore, an environment that encourages and rewards people to put that extra effort into a case to make sure you win is vitally important.”

To ensure the lowest possible risk, Lesko said, all cases are put through a grueling due diligence process that could take months and involve retaining consulting experts, even before filing an action. “Basically, the case is put through a war game by the attorneys, who act as if they are the defendants in the case,” he said. “If the case survives such a process, and there is a sufficient potential recovery to justify the amount of work that will be put into the case, the firm can proceed.”

He stressed that the due diligence process is the most important aspect of any case and can help assure that you bring home a winner. “Also, it will prepare you for many of the arguments a defendant will raise, which will hopefully keep you two steps ahead at all times,” he said.

Learn more about Simmons Hanly Conroy’s business and commercial litigation practice and fee structure.