Tuesday, August 5, 2014

Observations on IP Lawyer Billing Rates

No law-related topic generates more controversy and debate than lawyers charging money for their services.

Needless to say, private practice law firms are not charities, they are businesses. And like all successful enterprises, there is a particular business model at work.

Simply put, private practice lawyers must find a way to charge clients for their activities to generate profits. Putting aside "flat fee" arrangements or contingency fees, the standard billable model is based on how a lawyer's daily diary reflects time spent handling various matters.

Therefore, the only real debate is whether particular lawyers tend to charge their clients excessively, as compared to their professional peers.

To evaluate the legal marketplace for specialty services such as intellectual property and brand protection litigation or counseling, it is often helpful and illuminating to assess reliable information about what various IP law firms are currently charging their clients.

Such information can help a prospective client compare lawyers, and will help give a client insight into whether she is satisfied with the value that she is receiving from her particular lawyer and his law firm. 

Further, it can be helpful to understand how much of a lawyer's legal fees are eaten up by overhead costs, and how much is pure profit.

Here are same basic benchmarks for consideration.

Overhead Expenses:  As with all service professionals, a large chunk of fees collected by a lawyer is consumed by overhead expenses such as office rent and administrative support personnel's salaries. Some examples are:
It is worth noting that even a law firm that is not located on Park Avenue in Manhattan can incur more than 10x the rent of a smaller law office in New York City, and 125x(!) the overhead rent of a small law firm in Raleigh, North Carolina.

Further, let us consider the administrative salaries of support personnel such as experienced paralegals in various markets:
Therefore, an IP lawyer located in a posh office on Park Avenue in New York City assisted by a paralegal is likely to incur $1M a year more in overhead than his small firm counterpart located elsewhere in the United States.

Consequently, taking into account the effect of office geography alone, it is clear why a large law firm with its primary office in Manhattan feels it appropriate to charge its clients $1,000 an hour or more.

One study noted that even those lawyers working at law firms located in other major metropolitan areas such as Boston, Chicago, Los Angeles, San Francisco or D.C. add $161 per hour for rent alone.

Profits:  Even taking the expenses of high rent and high support staff salaries into account, the very "top" large law firms are still minting money. The very pinnacle of the legal marketplace, that is, the largest and most prestigious law firms in America, consistently charge their clients hourly rates over $1000 for their top IP lawyers.

So, if you are a sophisticated client rationally considering your various alternatives for premium quality IP legal services, you have at least two issues to think about:

1.  Am I staffing a "bet the company" case, where millions of dollars in legal fees simply do not matter, because I will risk my company's most precious assets if the case is lost? Also, do I fear that a loss in court might be blamed in part on me, because I didn't hire someone like Ted Olson of Gibson Dunn who charges $1800 an hour?  If so, hire Ted Olson. If not, don't.

2.  Is this the type of case that REQUIRES a lawyer located on Park Avenue or in Silicon Valley? If not, why should I make the lawyers' landlords or his partners any richer? Can I hire a smaller law firm with the exact same expertise, but without the fancy marble columns in the lobby, to staff this matter?

The best analogy that I have heard repeated when I was a "BigLaw" partner is that law firms are like cars.

You might want to rent a fancy Rolls Royce once in your life (for example, on your daughter's wedding day) and the price doesn't really matter that much for a short-term luxury splurge.

But on a daily basis, you choose to buy and drive a reliable, solid, comfortable car. Why? Because reliability gets you to work and home safely without the unnecessary bells and whistles.  And the same logic should apply to hiring an IP law firm for 95% of cases and matters.

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