Contingent Fee Arrangements – Alternative Billing

Though the billable hour is not vanishing anytime soon, at least two developments have contributed substantially to the growth of alternative billing. First, corporate clients are seeking ways to cut legal costs and have been pushing back on the status quo by insisting on alternative billing arrangements. And given the competitive landscape for lawyers, there is substantial acquiescence among law firms to these nascent client demands.

Second, the technology sector has created substantial value in assets such as patents and other intellectual property that has not been deployed or has very limited commercial distribution. When holders of these assets seek legal counsel for patent infringement cases or other legal wrongs, they typically do not have the financial resources to retain the legal talent required. In exchange for the potential of substantial revenues well exceeding the normal hourly rate, law firms make investments in this category of cases.

There are many names and styles of contingent fee arrangements: benchmarked success fees, blended fees, incentive-based fee structuring, results billing and enhanced flat-fee arrangements. The corporate world tends to call them, more simply, alternative billing. The appropriate alternative billing arrangement is often affected by a wide array of factors, including the type of case, how long it’s expected to take, the desired results and the personalities of the lawyer and the client. Given the complexity of these issues, it is quite difficult to establish hard and fast rules about what approach ought to be pursued in a given case. Here is an overview of several approaches that are increasingly common.