October 28, 2015
By Erin Coe
SAN DIEGO – With lower demand in some segments of intellectual property litigation and continued pricing pressure on prosecution work, law firms should focus on prioritizing the areas they specialize in and examining strategies to solidify client relationships.
IP litigation work for law firms has been lagging this year not just because companies have a decreased appetite for big-ticket lawsuits in general and because they are increasingly turning to less expensive third-party providers for discovery review and other tasks, but also because companies are taking more patent disputes to the Patent Trial and Appeal Board, according to Kent Zimmermann, a law firm management consultant at Zeughauser Group.
“The IP market is uneven at best, and it’s a little soft, according to many firms, including for the sought-after higher-rate IP litigation,” he said.
The volume of IP litigation work seems to be lower, which may in part be driven by the major smartphone wars beginning to wrap up as well as by the changing nature of nonpracticing entity cases, according to Maximilian Grant, a partner at Latham & Watkins LLP.
While nonpracticing entities five years ago were seeking $1 million or more to resolve patent infringement claims, which often spurred patent litigation, now Grant said he is seeing asks for a few hundred thousand dollars and even some in the five-figure range that are leaving companies to question whether litigation is worth the cost.
“Patent troll cases are resulting in substantially less work,” he said. “If [trolls] are asking for less than $100,000, a defendant is not even going to answer the complaint or it will answer the complaint while buying time to work out a deal.”
Meanwhile, IP prosecution and licensing work is becoming more rate sensitive and shifting over to boutiques and smaller firms, according to experts.
“The economy isn’t really back where it was when it was strong, and that’s greatly affecting companies’ decisions to be proactive in the way they protect their IP,” said Lisa Dunner, managing partner of Dunner Law PLLC, which provides counseling in such areas as trademark and copyright law. “When the economy is good, companies go out and register more of their brands … but right now some companies are going through their list of brands and being careful about when they decide to be proactive.”
Even though the IP area is slower, firms continue to be looking at ways to elevate their IP practices, particularly in high-stakes and often lucrative patent litigation, according to Dan Binstock, co-head of the partner and practice division at attorney search firm Garrison & Sisson Inc.
“It’s still a worthwhile investment that firms are interested in,” he said. “Patents are essential to certain clients’ businesses. If clients have a patent litigation need, it’s important litigation and law firms want to be on the short list to handle that.”
Here, experts share five ways that law firms can best position themselves amid a slow IP market.
Strengthen Ties With Clients
Whether firms are large or small, when IP work slows down, firm should be reconnecting with clients and looking for ways to nurture those relationships, according to Dunner.
“Firms should really use this time to meet with clients and speak with them about how to be a better firm, find out what clients are looking for, and talk to them about overall strategy versus just helping them put out fires,” she said. “That’s always a good thing to do during a slow period.”
Lawyers also may want to reach out to clients to educate or update them on certain areas of IP law, she said.
“Some of our clients don’t have in-house counsel, and they are always interested in educational programs on the basics of IP — what is it, how to maintain it and how to value and protect it,” Dunner said.
For clients with in-house counsel that are more experienced on the IP front, they might appreciate presentations that help them achieve certain business goals, such as best ways to go about licensing patents in their IP portfolio, she said.
Prioritize IP Services
Firms may be tempted to provide services in all areas of IP law, but many firms will be more competitive if they make tough decisions now about what type of IP work they want to be known for and then prioritize their time and money to double-down in those chosen areas, according to Zimmermann.
“Clients do not find it credible when a firm positions itself as the best at everything,” he said.
Better performing firms tend to prioritize investment in higher-rate geographies and areas of practice, including investing as much as possible in matters where results are more important than price, according to Zimmermann.
“IP is a tale of two cities,” he said. “You’ve got some work, often prosecution, that can be rate pressured and perceived in many cases as commoditizing by a lot of clients, and then you have other work, notably high-stakes patent litigation, that is widely perceived as highly sought-after and sometimes determinative of a company’s success.”
Firms that are busy have generally invested in developing a reputation for being the best or among the best at high-stakes patent litigation, such as Ropes & Gray LLP, Orrick Herrington & Sutcliffe LLP, Kirkland & Ellis LLP, WilmerHale and Sidley Austin LLP, according to Zimmermann.
“The key is how you define your market, which can be defined broadly to mean an industry section, geography, practice area or some combination,” he said. “Once firms choose how to define their market, then they need to build the breadth and depth to be preeminent in those practice areas, industries and/or geographies.”
When firms pinpoint the areas of expertise they plan to offer, they should keep all options on the table to achieve their objectives, including growing by laterals, groups and combinations with other firms, if doing so helps them reach their strategic vision for the future, according to Zimmermann. It also may require counseling out chronically underproductive lawyers and shedding chronically underperforming offices and practices.
“There are firms with too many attorneys and not enough work that are going to have to right-size to get stronger,” he said. “We expect to see more right-sizing ahead … and there will be more IP boutique combinations with other firms.”
Assemble a Killer Team
Firms aren’t going to make much of a name for themselves if they don’t have IP attorneys with the right expertise.
“Firms need very strong talent,” Zimmermann said. “Typically, the firms with the most money in a market get the best talent, the best talent begets the best clients and matters from them, and those firms outperform the pack. Then the cycle often repeats itself.”
If firms are looking to secure high-stakes patent litigation work, they are going to need to show clients that they have a wide range of patent capabilities — not just trial court experience, but an in-depth familiarity with America Invents Act reviews at the PTAB, proceedings at the U.S. International Trade Commission and challenges to the Federal Circuit — according to Grant.
“If firms don’t have strengths in those areas, they will be at a disadvantage when competing with firms that have those capabilities,” he said. “If clients need to file an inter partes review or need a strategy in handling an appeal, they are going to want to know whether they can use the same firm or must use a new firm and will need to make a variety of transitions.”
Firms must demonstrate that their attorneys aren’t commercial litigators who merely dabble in patent suits every once in a while, but lawyers who breathe patent litigation and understand the nuances, arguments and defenses in these types of cases, according to Grant.
“When faced with a case where a lot is at risk, clients are going to increasingly and consistently turn to IP specialists,” he said. “It’s part of the reason why firms like Finnegan Henderson Farabow Garrett & Dunner LLP are so successful. It has all that patent expertise under a single roof with attorneys who have been doing nothing but patent law for years. It’s a competitive sales pitch. If I’m a generalist firm that has handled two patent trials, I’m at a real disadvantage against specialty firms like Finnegan or generalist firms like Latham and Kirkland, which have built out those capabilities.”
In addition to touting lead attorneys with patent litigation chops, firms are going to need to show depth in their junior ranks, such as associates who have clerked at the Federal Circuit and technical analysts.
“These people are perceived correctly by clients as adding enormous value,” Grant said.
Target a Niche Area
While demand for IP litigation is fluctuating, some law firms are capitalizing on steady work coming out of key industries, such as the life sciences space, according to experts.
“Life sciences as an industry continues to be very busy and involves a lot of IP disputes,” said Larry Watanabe, founder of legal recruitment firm Watanabe Nason LLC. “Because most patent litigators have expertise in technology generally, the life sciences area is in high demand for people.”
Many firms have ramped up their IP teams in this industry over the year. In February, Latham snagged a pair of veteran IP attorneys with backgrounds in handling life science matters to join its Washington, D.C., office from Finnegan, and the following month, it picked up another Finnegan attorney who specializes in drugs and medical device patents for the office.
Mintz Levin Cohn Ferris Glovsky & Popeo PC in February bolstered its IP and life sciences practices by adding a Kilpatrick Townsend & Stockton LLP attorney to its San Diego office and five Womble Carlyle Sandridge & Rice LLP attorneys in Washington, D.C.
And in March, Cooley LLP beefed up its life sciences practice in London by nabbing two partners from Reed Smith LLP.
“We are on the verge of a new wave of IP suits in the biosimilars area,” Grant said. “A variety of firms are positioning themselves for this high-stakes litigation that is going to be technically and procedurally complex. It will be the new wave of ANDA litigation, and there will be an enormous amount of work there.”
And while much of the patent prosecution work is being commoditized, the biosimilars area is likely to be an exception, according to Grant.
“Because there will be so much money at stake and patents will be attacked by so many angles, companies will be seeking to pay what they need to pay to protect their patents and secure the most bulletproof patents possible,” he said.
Grant also predicted an uptick in work coming from industries like the automotive, medical device and technology areas.
“While the smartphone patent wars have started to go away, there is still litigation over technologies incorporated in smartphones,” he said. “The disputes involve an enormous amount of money, and that work will continue.”
Move Beyond the Billable Hour
Firms also can stand out from the competition by offering fee arrangements outside the standard hourly billing model, according to Dunner.
“Clients are getting savvier, and they are interested in being able to predict and maintain their budgets,” she said. “They want to know what something costs — not just the current project a firm is working on, but future projects. Firms should be looking at their pricing model and seeing how they can be creative.”
Alternative fee options present one way small firms can lure clients away from larger rivals, according to Dunner.
“Smaller firms are in a better position when times are slow to come up with creative billing strategies because they don’t have the overhead and staff that bigger firms have,” she said.
Many clients are demanding alternative fee arrangements on the prosecution, counseling and licensing side, and some are even asking for flat fees on their litigation work, according to Dunner.
“It’s always about the quality of the work, but in the last five years, it’s also about price,” she said. “Businesses are able to really pick and choose and demand that they not get charged exorbitant fees for work. I think firms have to react to that if they want to keep working with some clients.”