Retainer Fees and IP Practice: Questions, Questions, Everywhere

The Great Recession and the resulting pressures on the legal profession have brought, in their wake, calls for rethinking the way that law firms are structured and how clients are charged for legal services. As for the latter, these include calls to abolish or greatly diminish the hourly rate model in favour of making greater use of fixed fees for discrete projects. Less discussed is the use of the new/old method of reaching a retainer arrangement with a client, whereby a set fee is paid on a regular basis, be it monthly, quarterly, yearly or otherwise.

Thinking back on this Kat's encounters with retainer arrangements over the years, he has come to realize that retainers pose a special set of considerations for the IP practitioner. This is especially so when the IP practice is part of a larger general law office practice. As we enter the year 2011, this is a good opportunity to share some of his thoughts on retainers and IP practice.

What Does the Retainer Cover?--We assume that the client has entered into the retainer arrangement in order to achieve greater predictability about the amount paid and the payment schedule for ongoing legal services. These services usually fall within the corporate/commercial space and the client will usually have the expectation that as broad a scope as possible of legal services will be covered by the retainer. That said, except for litigation, which is invariably explicitly excluded from the retainer, speciality practices such as IP are often not directly included as part of the arrangement.

Because of this, the issues of whether IP is part of the retainer and, if so,
what kinds of IP-related legal services are included, can be complex. What about patent drafting and prosecution (more or less "no" I would imagine) or trade mark prosecution (more or less "yes")? What about giving advice about IP licences and other commercial agreements with a material IP component? What about giving an opinion about IP protectability or infringement; does it depend on which IP right is involved (patent infringement--"no"; trade mark and copyright infringment--perhaps "yes")? What about consultations on non-litigation IP subjects? What about oral IP consultations at the client's site? While this list could go on, the basic question remains the same: Is the IP service being given within or outside of the retainer?

How are IP Services Accounted For Within the Law Firm?--There is also the issue of how the law firm determines the profitability of the various IP services, especially when some services fall within the retainer, while others do not. A successful patent litigation practice is perhaps the most notable example, being a lucrative source of income for firms. It is reasonably simple to determine the profitability of a piece of patent litigation. Other IP-related activities may also be outside the retainer and their profitability can be similarly calculated. However, how does one measure the profitability of the IP component for those activities that are included within the retainer (especially if this measure serves as a basis for compensation)? Unless these determinations of profitability are carefully done, it may not be in the best interests of those IP lawyers whose work is primarily to provide retainer-covered services, even if the retainer arrangements may be in the best interests of the law firm.

Foreign IP Counsel-- Perhaps the most distinctive aspect of IP practice is its international component. While it is possible to maintain a solely domestic IP practice (again, IP litigation comes to mind), swathes of the IP practice involve multi-jursidictional matters. As a result, there will be a need to seek assistance of counsel in foreign jurisdictions.

From the point of view of a retainer, there is a double issue here. First, by the nature of things, the retainer client may not fully appreciate the extent to which it may have to engage additional IP legal counsel abroad. When the price tag comes in, there may be a sense of "sticker shock" for the client from these additional costs. This can create strains between the client and the law firm, especially where the fees of foreign, on the one hand, and the retainer, on the other hand, are viewed more like a zero-sum game than cumulative legal costs.

Secondly, when there is a need to engage foreign IP counsel, it is usually the retainer law firm that will seek out such foreign IP counsel. This puts the retainer law firm in a tricky position, because it may well have to negotiate the terms of engagement with foreign IP counsel on behalf of its client. Either the terms of the engagement are more "lucrative", at least for the short term, than the retainer terms themselves, or the negotiations may create a certain upleasantness between the two, retainer firm and foreign counsel, especially when the retainer firm seeks to negotiate downward the fee arrangements with foreign IP counsel.

Whether or not law firms will change the way that client services are priced, it is reasonable to assume that retainer arrangements will continue. As such, IP practitioners should pay particular attention to how such arrangements affect their own practice, against the backdrop of the broader retainer relationship between the law firm and the client.