A&O’s BlackBerry patent win soured as costs inquest criticises hours tally

The backlash from Mr Justice Floyd’s public criticism of Allen & Overy‘s (A&O) £5.2m bill for work on a piece of IP litigation shows how you can win a court battle but lose the ensuing PR war.

Floyd J noted that A&O ran up nine man-years worth of costs for a five-day trial that saw its client, BlackBerry manufacturer Research In Motion (RIM), emerge victorious in its IP dispute against technology company Visto.

Taylor Wessing, meanwhile, put in a bill for £1m on work for Visto. Not cheap by any means, but around 80 per cent less than A&O.

Firms are sensitive about fees, charge-out rates and how they staff litigation. So when a judge publicly dissects and disapproves of a major firm’s handling of these elements, it gets the market talking.

This was nowhere more true than on TheLawyer. com, where at the last count the story had prompted 30 comments.

But what has made the most impact is the discrepancy in fees between A&O, a magic circle firm, and Taylor Wessing, a true IP heavyweight. The quantity of hours, rather than the rate, was the problem.

Market sources put Taylor Wessing’s hourly IP partner rate at around £475 and A&O’s at between £550 and £600, which implies that the two firms’ prices are closer than their different bills suggest. But Floyd J noted that A&O had two associates who together worked more than 4,500 hours on the case, billing £2m.

Litigators in magic circle firms have sprung to A&O’s defence. Some market observers have tried to put the bill in perspective, saying it might not be the firm’s fault so much as the client’s.

One source said: “It’s a generalisation, but North American clients do like to spend three hours every night going through the documents to make them more American. They spend hours on it, and it’s a bit like mowing the lawn with your teeth.” The context is important. It is not the first time RIM’s legal piggybank has been smashed. In 2006 the company had six firms working flat-out for almost two years on its patent dispute with NTP, and it still had to pay out more than $600m (£302.83m) to settle the case. Opposing US firm Wiley Rein & Fielding grabbed a third of the settlement in fees, putting A&O’s £5.2m in the shade.

Since that time RIM has been a target for many smaller companies looking to extricate money from it with a series of patent suits. The more cases RIM loses, the more cases it will have to fight.

Over the long term it will be cheaper for RIM’s in-house lawyers to do all they can to win every case and hope that eventually their potential opponents will look elsewhere. RIM’s litigation ;budget ;for external firms is sizeable as a result.

This explains RIM licensing chief Tom Sanchez’s calm reaction to the bill, saying he was pleased with A&O’s work and the result.

One City litigator commented: “The important thing for clients at this level of litigation is to come in under budget, so they’d rather pay £5m and tell the finance officer they’ve saved 10 per cent than pay £2.5m and go £500,000 over a £2m budget.”

The real mistake from A&O and RIM was not so much the bill as the decision to ask for interim costs totalling £1m. Floyd J rejected the payment, but expertly ;dissected ;the different bills, bringing them into the public eye in the process.

The resulting judgment generated worse publicity for the firm than if it had actually lost the case and has drawn the market’s attention to the cost of A&O’s work rather than its quality.

WHAT THEY SAID ON WWW.THELAWYER.COM

“It does not only affect A&O, it is a concern for all [magic circle] law firms who do big-ticket litigation/transactional work.”

“I mean if I was a client such as RIM I think I would much prefer a £5m bill and victory in all the issues, than a £1m bill and having lost all of the issues.”

“The implications of the case could have been huge for RIM. ‘Investing’ £5 million in legal fees may have seemed like a good move for the firm, particularly given the potential dent from licensing costs or even losing parts of what makes RIM unique.”

“Save costs and outsource to India the research aspects, people there can do it at a fraction of cost, less attitude, without unnecessary coffee breaks and other breaks, getting down to business with much fuss. US firms started to do it long back, it’s time for UK firms to learn lessons.”

“Their spokesman might try to frame the issues and twist the facts very nicely, but that won’t change the fact that A&O lawyers are extremely inefficient compared to their rivals. What’s passing people by here is the fact that this still has to go off to a costs judge. It doesn’t necessarily follow that Allen & Overy will be putting all this forward as costs.”

“I can see A&O have had their staff comment rather feverishly to justify the absurd. This illustrates everything that is wrong with the legal profession.”

“That or people outside Allen & Overy have a modicum of objective common sense…”