Alternative fee arrangements (AFAs) are now well on their way to becoming standard within the intellectual property (IP) and broader legal services market, replacing traditional attorney hourly billing for an increasing number of tasks.

This movement was fuelled initially by the global financial crisis, spurring in-house counsel to reassess their external legal spend and to seek greater cost efficiencies – not only in lower-level administrative processes, but also in more substantive IP and legal work, such as patent prosecution. The aim: to save both time and cost, without compromising on quality of output.

The growing demand by in-house counsel for greater predictability in budgeting legal costs and improved process efficiency has led more corporations and law firms to work with IP and legal services support providers. These organizations (such as CPA Global, which pioneered the outsourcing of IP maintenance payments more than 40 years ago) operate as an extension to in-house counsel and/or external legal teams. Such entities can offer a more cost-efficient service for repeatable, administrative and burdensome IP and broader legal tasks, including patent and trademark searching, docketing, document review and legal research. This enables the in-house and/or law firm attorneys to focus on higher value work and helps pave the way for greater flexibility in pricing structures, especially with regard to the fixed fee arrangements favored by many in-house counsel.

Fostering collaboration and cooperation

The drive to AFAs requires highly collaborative relationships between in-house counsel, their law firms and other service providers. These are typically constructed on a bespoke basis in order to meet differing client requirements. Think of them as collaborative business plans that are created to meet individual and mutual interests. Part of the plan should always explore where outside providers of IP and legal support services can be utilized to optimum effect.

From the start, relationship building is crucial. To deliver the best results, a project manager should be established within each of the parties involved to focus on the business and management aspects of the relationship. Having a fixed fee arrangement for specific work requires a solid collaborative relationship between all parties. This helps achieve efficiencies in legal administrative processes and workflows in order to bring further cost savings for in-house counsel and drive down operational costs for the law firm. There should also be periodic reviews of the effectiveness of the relationship and the fee structure.

For PPG Industries, Inc., a leading international coatings and specialty products company, fixed fee arrangements for their IP services are essential to predictability in budgeting. Diane Meyers, PPG’s corporate counsel for IP, Coatings, and also a registered patent attorney, says, “There needs to be a clear understanding of what will and what won’t be done, as well as what is covered by the fixed fee/flat rate and what is extra.”

Critical to a fixed fee arrangement is the need for outside counsel and service providers to earn the trust of in-house counsel. By being a true extension to an in-house legal team, law firms and IP and legal support service providers should ensure that they approach a solution to an issue with a commercial lens – always keeping top of mind what’s in the best interests for their client’s business. “They should put themselves in the client’s shoes – thinking and acting commercially, as if they were the client,” adds Meyers. “What would they do to get the best possible commercial outcome for the business?”

Flexibility is key

There will inevitably be different requirements for different members of the in-house team; so, in order to achieve the smoothest, most efficient relationship, it is helpful for in-house counsel to set parameters to ensure everyone’s level of involvement is known and adhered to. In-house counsel should also reach out to their law firm and IP and legal support service provider for best practice solutions and suggestions on shaping a winning engagement for their company.

For example, as Meyers comments, “In-house attorneys will likely want different information. One in-house attorney might want to be copied in on everything, while another only where a key decision needs to be made or where spend is over a certain value.” Setting these expectations and communicating them to all concerned will help to ensure everyone is satisfied with the level of interaction they are receiving.

AFAs enable law firms and service providers to move away from a relationship that is based entirely on hours spent towards a fee structure focused on rewarding the value brought to the client. In this way, it is a win-win-win collaborative relationship. It helps in-house counsel meet their IP and broader legal commercial objectives, while demonstrating flexibility and a keen understanding of the client’s needs on the part of the law firms and service providers – important qualities that contribute to building stronger, more enduring relationships.