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Looking down the barrel of a threatening patent infringement action from Sanyo Electric Co., Chinese cellphone battery maker BYD Co. wanted the intellectual property heavyweights at Howrey � but not their heavy rates. BYD didn’t walk away and it didn’t just cut the price. Instead, Washington-based Howrey offered to take the case at a discount � with a bonus to be paid if a good verdict or settlement was reached. With hourly rates continuing to skyrocket at big firms, clients are pushing alternative fees as a way to control costs � and law firms say they are listening. While the billable hour is still the most common calculation, fixed fees for larger volumes of work or success-based arrangements, are getting more attention, firms say. “Both clients and law firms are becoming more creative in their fee arrangements � both on the plaintiff side and the defense side,” said Henry Bunsow, Howrey’s Northern California managing partner. Jami Wintz McKeon, who heads Morgan, Lewis & Bockius’ commercial litigation, said she has seen more interest in alternative deals, such as the fixed-fee arrangement under which the firm does tech giant Cisco Systems Inc.’s domestic commercial litigation. “We have an increasing number of our most sophisticated clients, for whom we do a lot of work, who are exploring these kinds of arrangements,” McKeon said. She estimated that 40% of the 1,300-lawyer firm’s annual revenue now comes from alternative fee arrangements � an unusually high number for a big firm. A search for predictability Firms say some clients are talking about fixed fees for big loads of litigation or transactions to bring more predictability to legal costs. Alternatives also include performance-based arrangements, such as the hybrid contingency used in the BYD case � not a novelty for plaintiffs’ lawyers, but new to the defense bar. Blended rates, which fix the hourly rate a firm can charge for a matter, are also a topic of discussion. But fans of axing the traditional billable hour worry that the increased talk by clients and firms, in most cases, is just that. Jeffrey Carr, general counsel at FMC Technologies Inc., said a friend told him alternative fees are like teenage sex. “There are more people talking about it than doing it,” Carr explained, “and those that are doing it don’t know what they’re doing.” Some research bears him out. A 2006 survey of 169 in-house law departments found that 87% use standard hourly rates for most of their legal work � a few percentage points higher than previous years. The survey, conducted by Serengeti Law and the Association of Corporate Counsel, found that only 10% of companies reported no resistance to alternative fees from outside firms. Law firms say that’s because it’s difficult to take into account all the contingencies that come with legal work � and because alternative fees can sometimes be shorthand for deep discounts. “It takes a real serious effort to fashion them, and they’re not always mutually beneficial,” said David Balabanian, who heads Bingham McCutchen’s litigation practice. Like many others, Balabanian said his firm is open to alternative fee arrangements and has used them in a small percentage of matters. Morrison & Foerster; Orrick, Herrington & Sutcliffe; Cooley Godward Kronish; Fish & Richardson; and other big firms said the same. Bunsow said Howrey was confident that it could get a favorable outcome defending BYD and felt comfortable agreeing to a hybrid contingency. The terms were that Howrey would charge a discount on its estimate for the trial and receive a bonus if either it prevailed in court or reached a low-cost settlement. The decision paid off. In 2005, the case settled before going to trial for “less than the value of one day’s production” at BYD’s battery plant, Bunsow said. That earned the trial team a celebratory trip to China and a cool million-dollar bonus, which bumped the firm’s revenue from the case 50% higher than it would’ve been with plain old billable hours, he said.

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