John Desmarais, founding partner of Desmarais, spoke to the New York Law Journal about the advantages and challenges of being a midsize law firm in a city where everything is supersized.
Desmarais, whose practice is in the area of intellectual property litigation and counseling, said all of the firm’s 57 lawyers have bachelor’s or graduate degrees in science, engineering, computer science or math.
“We believe a foundation in technology is very important when dealing with highly technical patent litigation and other technology-focused cases,” he said. “Our attorneys’ broad range of technical backgrounds enables us to present complex technological concepts in a straightforward manner that is understandable to judges and juries.”
The conversation was part of a series of discussions with the leaders of New York’s midsize law firms.
Q: How big is your firm, where is it located and what are its primary areas of practice and focus?
A: After the new fall associates start, we will be 57 lawyers. We are in midtown Manhattan in the old Helmsley Building at 230 Park Ave. We are planning to open an office in San Francisco within the next year. We focus primarily on high-end patent litigation, but also litigate trade secret, antitrust and contract cases, among others, if they have a technology focus. Almost all of our lawyers have bachelor’s or graduate degrees in science, engineering, computer science or math. We believe a foundation in technology is very important when dealing with highly technical patent litigation and other technology-focused cases. Our attorneys’ broad range of technical backgrounds enables us to present complex technological concepts in a straightforward manner that is understandable to judges and juries. For example, just last month we secured an $82.5 million verdict for our client, IBM, in a Delaware federal jury trial on four patents related to online commerce against Groupon, which was found to have willfully infringed all four patents. And, early this month, we defended Cisco against a monopolization claim brought by Arista in federal court in San Jose, California. The case settled the morning before opening statements with Arista paying Cisco $400 million to avoid trying its own monopolization claim.
Q: Please explain your firm’s governance structure and compensation model.
A: We govern the firm by equity partner vote. Equity partners have shares in the firm and vote their shares. But in practice, we rarely actually vote; instead, most matters are decided by consensus. Partners split the profits based on the number of shares they have, which is evaluated based upon merit every couple of years. Associates are paid $20,000 above the New York scale at every level (first-year associates currently start at $210,000), and their year-end bonuses are also significantly above the New York market. And, for all employees, we cover their health care and contribute a percentage to their 401(k) plans.
Q: What do you view as the two biggest opportunities for your firm, and what are the two biggest threats?
A: Our biggest opportunities are to target large cases that are likely to go to trial. To field trial-ready teams at all levels, we spend a lot of time and energy training our lawyers to try cases, with twice-yearly mock deposition, argument and trial training for all lawyers. Our current workload is heavily focused on the tech sector—one large opportunity for us moving forward is on the life sciences side of the business where we are actively focusing in the near term. Recruiting also remains a major priority for us going forward, as we look to continue to bring in the top law students from the top law schools. We compete with the large firms for the same recruits. If we want to continue to grow, we need more and more of the top recruits who have technical degrees, and that is a limited pool that is fiercely sought after by several firms.
Q: After the recession hit, the prevailing theory was that midsize firms would start to see more work come their way from large clients who could no longer justify paying Big Law rates. What has been your experience?
A: We have found that clients are still willing to pay top rates for their most important matters, and those are the matters we work on. However, our method of billing differentiates us from all the big firms with which we compete, and our model has continued to attract work to our firm. We do not bill by the hour. Instead, we bill a monthly, flat fee and, if a client prefers, we also will bill a flat monthly fee for the expenses, which we will then manage. The preset monthly fee gives clients clear budget certainty for the duration of the matter. Of course, that arrangement should not be confused with a cap on the overall fee or the amount a matter will cost—it is simply a predetermined monthly fee that is charged for the duration of the matter. Most of our monthly fees vary based upon the stage of the matter. Clients come to us not for a discount—our case budgets are market-rate with the big firms—but they appreciate our approach for its ease of administration and complete quarterly budget predictability.
Q: Are your clients pushing for more alternative fee arrangements, and if so what types? Is your firm amenable to those requests?
A: Yes. The fee schedule is set at the inception of each matter. We tailor fee schedules to particular matters, considering multiple factors, including the size and complexity of a potential litigation. Additionally, many of our clients like to pay us bonuses for success, so for those clients, we work into many of our budgets success bonuses for the different stages of a matter, such as if we win a motion to dismiss, or a summary judgment motion, or the trial, etc. Because of our experience with alternative fee arrangements, we can be flexible in structuring fee schedules to address client funding milestones or budget constraints.
Q: There is much debate around how law firms can foster the next generation of legal talent. What advantages and disadvantages do midsize firms have in attracting and retaining young lawyers, particularly millennials?
A: The key is to train the young lawyers and then give them responsibility right out of law school. Younger attorneys can grow their skill set very fast if given proper training and opportunity. In our view, millennials will stay at a firm if they are given exciting work and exciting opportunities for growth. With our model of flat monthly fees, we are free to bring young lawyers to depositions and court as part of their training. Clients do not push back on young lawyers attending depositions or hearings, because they are not paying by the hour for those appearances. As a result, our lawyers develop very quickly from their regular attendance at actual depositions and arguments in combination with our twice-yearly mock deposition, argument and trial training. Although they start by watching, soon enough they progress to doing—rapidly gaining real-world professional skills. In addition, smaller specialty firms like ours have an advantage because all the associates know each other and bond in a way that is very hard to replicate at a large multipractice firm.
Q: Does your firm employ any nonlawyer professionals in high-level positions (e.g., COO, business development officer, chief strategy officer, etc.)? If so, why is it advantageous to have a nonlawyer in that role? If not, have you considered hiring any?
A: No. We have a partnership that is actively involved in the management of the firm. Within the partnership, we have committees responsible for various business functions, such as accounting, business development and marketing, technology, and operations. By keeping partners involved in management functions, we are more engaged and responsive to technological and market changes that affect our business. More important, our partnership’s active management style ensures high-quality results for our clients through smart and efficient management of our case teams.
Q: What if any technology advancements have you made in your firm in recent years? What are the challenges in implementing tech changes?
A: Cybersecurity is our top technology priority in this age of “ransomware” and hacking campaigns. We strive to provide the maximum protection for our IT systems through new technology and training programs. Maintaining cybersecurity presents challenges, such as balancing security protections with user productivity. We are constantly evaluating the threat landscape and our own requirements to maintain that balance.
Q: What would you say is the most innovative thing your firm has done recently, whether it be internal operations, how you work with clients, etc.?
A: Our monthly, flat-fee billing approach, including the regular employment of success bonuses for the various key events in a case, and our willingness even to set a flat monthly fee for the expense side of a matter, is probably our most innovative aspect. We have continued to refine our procedures for setting fee schedules based upon the size, type and complexity of cases. The fixed monthly fee billing approach not only provides predictability for our clients’ budgets, it also enables our firm to make accurate financial forecasts.
Q: Does your firm have a succession plan in place? If so, what challenges do you face in trying to execute that plan? If you don’t currently have a plan, is it an issue your firm is thinking about?
A: We are actively planning for succession. Our plan is implemented regularly by pushing responsibility for client matters down to the next generation as soon as practicable. Firms generally do not do a good job in this regard because senior partners are unwilling to let go of responsibility for clients and matters. We have a very different philosophy, and we regularly encourage our clients to allow the younger partners to take control. That approach frees up the more senior partners either to develop new clients or to train the younger partners, both of which are critical to the firm’s long-term success.