Justice Christopher Floyd did not mince his words. The costs claimed by Allen & Overy were “astonishing”. The disparity between their expenses and the opposing side was “staggering”. The number of hours the firm clocked up, he found “shocking”.
In April, Allen & Overy represented Research in Motion (RIM), the BlackBerry handheld device maker, in a dispute with Visto, a US software company. It was, in the opinion of Justice Floyd, “not a particularly heavy” patent case. Yet the magic circle firm charged nine years’ worth of man-hours, for the five-day trial. “It is astonishing that a sum of £6 million can have been spent by RIM’s advisers in fighting these disputes.”
Justice Floyd was incredulous as to how the costs included £2 million for two A&O associates – who racked up more than 4,500 billable hours between them. “For these sums of money, one would be entitled to expect each of them to be able to recite all the documents in the case by heart.”
The judge drew attention to the fact that Allen & Overy outspent Visto’s lawyers, Taylor Wessing – whose fees totalled £1.6 million – by a margin of more than four to one. In addition, A&O charged £1 million for trainees and paralegals tasked with reading background material in the 15-month build-up. The costs are under assessment, but Visto, which lost the trial, is set to pay two-thirds of RIM’s bill – much to its dismay given the extortionate costs.
The sheer number of lawyers A&O brought to court certainly bewildered Visto general counsel Tim Robbins. “At times they had 20 people sitting there. I don’t know what they were all for. We had a team of five or six people, which was totally adequate,” he says.
So what does RIM think of A&O’s fees? It’s obvious the matter has generated a lot of discussion at boardroom level. Patent litigation chief Tom Sanchez is cautious about what he says in light of the controversy; but he makes it clear that RIM “certainly prefers to keep costs down” and adds that the company “listens when the court says the costs are high”.
Justice Floyd is known for his balanced and considered opinions, and his comments have reignited debate about the methods City firms use to charge their clients. A&O’s brand has been tarnished by this incident.
But observers fear the episode could have far-reaching consequences, damaging London’s reputation as a litigation hub. It’s not the first time a judge has hit out over fees. The country’s top IP judge, Lord Justice Jacob, and Lord Chief Justice Nicholas Phillips have issued stern rebukes in the recent past. It is, however, unusual for such criticism to make the front page of the Financial Times as in the case of Justice’s Floyd’s outburst.
The question is: what effect will this criticism have on the legal profession?
Negative Publicity
Justice Floyd’s comments have been circulated far and wide. The Dutch Bar Association copied the judgment to all its members in an attempt to discourage clients from litigating in London. The British capital vies with a handful of European cities for patent litigation. Its rivals include Paris and The Hague, in addition to Düsseldorf, Munich, and Manheim in Germany.
“Justice Floyd’s comments have been the talk of the international legal community,” says an IP partner at a City firm. “Many foreign clients have referred to the judgment whenever the subject of costs has been raised.”
One such client is Henry Bosch, senior European patent attorney at biotech giant Monsanto. “The fees sound outrageous,” Bosch says. He adds such high costs might encourage clients to litigate elsewhere. “The quality of advice in Holland is excellent and not necessarily at such high rates.”
London-based lawyers concede the furore surrounding Allen & Overy’s fees has tarnished the city’s reputation. “It’s been a real blow to the credibility of London as a jurisdiction for IP and litigation generally,” says a City IP partner.
Simmons & Simmons’ Kevin Mooney puts it even more simply. “Companies are not going to come to the UK if they’re going to get blasted with this sort of fee.”
Systemic Problems
The country’s leading IP judge, Lord Justice Robin Jacob, advocates a tough response to the problem of soaring solicitors’ costs. Too many firms, he argues, take advantage of their clients.
They cram projects with more lawyers than necessary, fob work onto trainees to rack up the numbers, amass obscene amounts of billable hours, and are generally inefficient. “The system at big firms is part of the problem,” he says.
“Clients have got to put their feet down and say enough is enough.” The Law Society, however, offers little recourse for commercial clients to complain should they feel they have been ripped off. Its unofficial position is that clients should speak with their feet and take their business elsewhere. Justice Jacob concurs.
“The clients’ first avenue is to protect themselves through their contracts,” he continues. “In practice, if they get charged too much they could argue it’s a breach of contract. Some clients are also looking at capped fees. But most importantly they should shop wisely.
Too many companies feel stuck with their lawyers,” he says. The judge’s comments should resonate with RIM. The BlackBerry maker has opted to retain Allen & Overy for an upcoming case despite the controversy over its fees. But RIM’s patent litigation chief Tom Sanchez stops short of endorsing the firm wholesale. “It takes a lot of time to learn to work with people that understand your technology. Once you’ve brought them up to speed, it’s very hard to train somebody else up,” he explains.
Justice Jacob continues: “Clients should have the courage to move. Don’t underestimate the ability of lawyers at the patent Bar to pick stuff up. In many ways, boutique firms are the better because they haven’t got IP partners trying to compete with M&A partners.”
Justice Jacob cites London-based IP boutique Powell & Gilbert as one firm whose costs are more in proportion. Last year, the firm represented Monsanto in a dispute with Cargill over GM soybean patents. (The case was, incidentally, also presided over by Justice Floyd.)
It required Powell & Gilbert lawyers to visit several locations in the US, Europe and South America to do documentary disclosure. The trial itself lasted three weeks. “We had to run a series of highly complex experiments in America. It was as heavy a case as we’re likely to see in terms of technical procedural capacity,” founding partner Tim Powell says. Yet the firm’s bill came to £2 million; two thirds less than RIM’s fees – which had no disclosure, no experiments and a five-day trial.
So where does it shave costs? Its hourly rates are not dissimilar to City rivals. Efficiency is the byword, claims Powell. “Patent contests can be very technically complex. People can spend an awful lot of time trying to understand the factual background. It’s work that requires people who have more than just legal brainpower. You need lawyers with specialist technical qualifications as well.”
The magic circle may pride itself on hiring graduates with firsts from Oxbridge, but it can still take them months to understand complex IT logarithms. In contrast, Powell & Gilbert’s lawyers typically have a science degree and a law degree. “If the client comes in with a biotech problem we can put a couple of PhD molecular biologists on it. If it’s an electronics problem we’ve got people with physics’ degrees,” Powell explains.
Departmental Divisions
At the end of the day, the prime source of profit at many full-service City firms is corporate and finance work. The investment banks in particular are a prized source of revenue and, given the huge fees they charge their clients, are not in a position to complain about legal costs. In a lockstep system, litigation and IP partners can feel like perennial underachievers. “There is huge pressure on these partners at big firms,” Justice Jacob says.
“They don’t want to be seen as not pulling their weight.” It’s a problem Xavier Buffet Delmas, who used to run Freshfields’ Paris IP group, can relate to. “It was hard to compete with the fees charged by M&A,” he admits. The IP specialist quit Freshfields last year to join Hogan & Hartson. The struggle to keep fees in line with the firm’s high earning corporate group contributed to his departure. “Billing targets were also part of the problem,” he adds. “Over the longer term they created pressure.” As to whether this pressure leads lawyers to ramp up bills is open to debate.
But Allen & Overy’s motives might be questioned after it employed trainees to read £1 million worth of background material in the RIM case. Allen & Overy, for its part, is adamant the fees were justified. “The money was spent inducing an admission from Visto that a major part of the BlackBerry system did not infringe,” says IP partner Nicola Dagg.
The client asked that no stone be left unturned and the firm responded, she adds. “The legal costs were a tiny fraction of the value of RIM’s business which was put at risk.” But Justice Floyd has little truck with this explanation. “I have great difficulty with the logic [that] the patent represented any threat at all to RIM’s business,” he stated in his judgment.
“It has only been, so far as the evidence goes, a threat to the Mail Connector product – which RIM have consistently maintained was of little significance.” The Aftermath Justice’s Floyd’s outburst has had an effect. Lawyers in the City agree that in the current climate nobody would dream of charging anything near £6 million for a patent trial.
“It’s been a huge embarrassment for Allen & Overy,” says Larry Cohen, an IP partner at Latham & Watkins. “No other firm will want to risk that kind of negative publicity.” Cohen adds that the knock-on effect has been to institutionalise a ballpark figure, of between £1.5 and £2 million, as an acceptable amount for certain types of patent case.
“The judge did not comment on the £1.6 million Taylor Wessing charged its client and that will have been noted,” he says. There is also the question of whether the incident will affect London as a jurisdiction. “I certainly don’t want anyone to get the impression that £6 million is normal for a patent litigation in the UK,” says Powell & Gilbert’s Tim Powell.
“If there is one thing we are concerned about more than anything else, it’s competitive pressure from the continent. Clients often ask about fees in the UK.We have to advise them on the relative merits of litigating here compared with other European cities. These are issues that are not going to go away.”
Most observers, however, say recent events will do little to alter the British capital’s position as Europe’s premier destination for settling tough patent disputes. “English common law litigation may be more expensive,” concedes Trevor Cook, a senior IP partner at Bird & Bird.
“But it has its advantages. Its system of cross-examination ensures that patents are scrutinised very thoroughly using all the tools available. Moreover, disputes as to both validity and infringement usually get to court between 12-14 months, which is much quicker than anywhere on the Continent. Clients in important cases are happy to pay for that. One anomalous and apparently incomprehensible fee is not going to have any lasting effect.”