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The Business of Patent Claim Litigation – 40% Contingent Fee Held Reasonable and Patent Malpra

Here (but subscription required) is a Chicago Daily Law Bulletin article regarding an interesting ruling on two aspects of entrepreneurial claiming. The opinion holds that a 40% contingent fee is a reasonable fee for contingent patent fee claims. The case also holds that since patent law claims arise under federal law, the federal courts also are the proper place for legal malpratice claims involving patent law.

The article also is pasted below, in part:

By Pat Milhizer Law Bulletin staff writer

When law firms are hit with legal-malpractice claims involving patent disputes, those claims should be handled in federal courtrooms — instead of state courts — since that’s where the underlying patent dispute began, the 1st District Appellate Court has held in a ruling that’s the first of its kind in Illinois.

In the same opinion issued this week, the appellate justices also said that a law firm that prosecuted several patent claims for one client on the condition that the attorneys would get 40 percent of all of the potential settlements and verdicts was being reasonable and didn’t violate any rules of professional conduct.


When they were hired, the attorneys inked a contingency fee agreement with Premier that they would bill for reasonable and necessary expenses. In addition, the contract stated that the lawyers would get 40 percent of any payments that the company received as a result of licenses, settlements, judgments and other related court decisions through the life of the patents.

The deal included a termination clause for either party, and if that happened, the lawyers would be eligible for quantum meruit pay, meaning a judge or jury would decide how much they would be paid for unfinished work.

The lawyers secured several settlements and millions of dollars for Premier, according to an attorney who represented the firm on appeal in the malpractice claim.

In one of the cases, the company hired the lawyers to prosecute a patent claim against Lucent Technologies regarding a system that amplifies telephone signals.

But that lawsuit got shot down.

A federal judge granted summary judgment to Lucent, and the decision was affirmed by a federal appeals panel in an unpublished opinion.

Premier then sued the law firm for legal-malpractice, saying that the lawyers failed to use scientific evidence that it was provided with to rebut a claim made by Lucent. Premier said that if the lawyers had used the information, it would have won the federal lawsuit.

The law firm filed a motion to dismiss the malpractice suit with prejudice due to a failure to state a cause of action, and Cook County Circuit Judge Kathy M. Flanagan did dismiss it — but on the basis that she lacked jurisdiction.

Flanagan also found that the contingent fee was valid and enforceable.

Both sides filed appeals, and in a 12-page opinion released Tuesday, an appellate panel affirmed the circuit court decisions. The decision was written by Appellate Justice Joy V. Cunningham; Justices Thomas E. Hoffman and Themis N. Karnezis concurred.

Premier alleged that the contingent fee deal with the law firm violated the Illinois Rules of Professional Conduct, which requires that attorney fees be reasonable. The appellate justices also read Premier’s complaint to say that the law firm violated the conduct rules by entering into a business transaction with the company.

The justices held that there was no business transaction and that the agreed-upon fee wasn’t unreasonable.

“The facts of the underlying case suggest the need for highly skilled legal representation in a very technically narrow area of patent practice,” Cunningham wrote. “Premier obviously had confidence in Stadheim’s ability to represent its interests in this narrow, technical area of patent law.”

The panel then addressed the question of whether legal-malpractice actions must yield to federal jurisdiction when the malpractice action requires a resolution of patent law issues.

The court relied on three cases in other states to reach its conclusion, ruling that “because the federal court has exclusive jurisdiction over patent cases, this jurisdiction also extends to cases in which the plaintiff’s right to relief necessarily depends upon the resolution of a substantial question of patent law.”

The case is Premier Networks Inc. v. Stadheim and Grear Ltd., et al., No. 1-08-1133.

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