Boutique Firms Mean Freedom of Choice for IP Litigators | Value Investing News

Boutique Firms Mean Freedom of Choice for IP Litigators

Patent litigator John Desmarais raised eyebrows when he left Kirkland & Ellis two years ago to start a firm that—unlike most large firms—would be game to take on plaintiffs-side work for nonpracticing entities (NPEs), less flatteringly called patent trolls. But he appears to have sparked a trend. At least three more patent litigation boutiques with a similar strategy have since arrived on the scene. Tensegrity Law Group; Freitas Tseng Baik & Kaufman; and Feinberg Day Alberti & Thompson are each staffed by defectors from large firms seizing what they see as a tantalizing opportunity to bring lucrative patent claims on contingency—in some cases for NPEs.

Other patent litigators may follow suit, predicts Mark Lemley, the director of Stanford Law School’s program in law, science, and technology. “We are seeing more and more people moving in this direction,” Lemley says.

Recent years have seen the emergence of a “robust secondary and tertiary market for patent sales and acquisitions and enforcement,” says Matthew Powers, a former cochairman of the 500-lawyer litigation department at Weil, Gotshal & Manges. (Just how robust was demonstrated by one of the landmark deals of 2011, the $4.5 billion sale of Nortel Networks Corporation’s patent portfolio to a consortium of technology companies.) Demand has increased for litigators who will represent patent holders itchy to monetize their intellectual property by court action. But client conflicts and fee constraints bar litigators at many large firms from such work, Powers says. The new boutique start-ups allow their litigators greater flexibility in picking clients, arranging contingency fees, and even securing patent ownership for themselves.

Powers is not a detached observer. He left 1,200-lawyer Weil, Gotshal last summer to start six-lawyer Tensegrity, based in Silicon Valley in Redwood Shores, California. Powers, 52, was a former member of Weil’s executive management committee and one of the firm’s top litigators, with a billing rate that he says reached $1,100. Another Weil partner and four associates went with him to Tensegrity. Powers cribbed the firm’s name—pronounced “Ten-SEG-rity”—from geodesic-dome inventor R. Buckminster Fuller, who coined the word to refer to a light, strong, and balanced structure that is built from a small number of well-designed elements.

“I wanted to get back to a small group of people, whom I could help grow, and be excited about it, and not have the bureaucracy of a large firm,” Powers says. Like the other new-line patent boutiques, Powers says, Tensegrity is willing, even eager, to represent NPEs known for suing the kind of technology behemoths that large law firms typically represent—although so far he hasn’t filed any claims for NPEs yet. And in some cases Powers envisions taking a chunk of patent ownership as part of Tensegrity’s compensation. At press time Tensegrity was still working through a backlog of Weil litigation, but expected to begin filing new cases soon, according to Powers.

If the four firms have embraced the same basic business model, they differ in some particulars.

Two-year-old Desmarais LLP, based in New York, is affiliated with a patent-holding company, Round Rock Research L.L.C., that was also started by John Desmarais, now 48. Round Rock owns more than 4,000 computer chip patents that Desmarais acquired from his client Micron Technology Inc. in a private transaction. With five partners and 12 associates, Desmarais LLP does not charge clients by the hour, accepting only fixed or contingency fees. (Unlike Powers, Desmarais says he has no desire to own more patents.) On behalf of Round Rock, Desmarais LLP has sued Dell Computer Corporation, Oracle Corporation, and cell phone maker HTC Corporation for alleged patent infringement. Round Rock has settled with Oracle and HTC; the case against Dell, which has denied the patent infringement claim, is pending. The firm has also filed suits on behalf of “several” other NPE clients, Desmarais says.

Desmarais LLP counts International Business Machines Corporation, Cisco Systems, Inc., and Boston Scientific Corporation as clients. But Desmarais says he aims to avoid the client conflicts of a large corporate firm: “We’re keeping big-company clients to a minimum.”

Patent ownership isn’t part of the current model for two more new boutiques, Freitas Tseng & Kaufman and Feinberg Day Alberti & Thompson. Freitas Tseng, also based in Redwood Shores, was launched by nine former Orrick, Herrington & Sutcliffe lawyers in February 2011. “We concluded that plaintiff work wasn’t going to be possible [at Orrick] because of the conflicts issue, and NPEs were another issue,” says name partner Robert Freitas. The firm already has filed patent infringement claims for two NPEs: a suit against automakers for Beacon Navigation GmbH, a global positioning system patentee, and a suit against disc player makers for Orinda Intellectual Properties Ltd., a Blu-ray patent holder.

Founded in February 2011 by seven litigators from Mayer Brown and DLA Piper, Palo Alto–based Feinberg Day embraces both hourly billing and contingency fee arrangements. The firm has lined up several NPEs as clients, including Talon Research and Pragmatus. At their old firms, the Feinberg Day litigators had to buck growing resistance from corporate clients because of high billing rates, which were “pricing them out of the market,” says firm cofounder Ian Feinberg, 57. Now they charge $475 an hour and keep costs low by skimping on office decor and keeping the number of associates at zero. Business is now so brisk, including work for defendants such as Adobe Systems Inc., as well as for plaintiffs, that the partners are reassessing their policy against hiring associates.

Peter Detkin, vice-chairman of Bellevue, Washington–based Intellectual Ventures LLC, a patent-holding company that often brings suit for patent infringement, welcomes the start-ups. He says the new firms are “appealing to us” because they offer contingency and other “creative” fee arrangements. Already on retainer are Desmarais LLP and Feinberg Day.

The question remains how many other large-firm patent litigators will take the startup leap. Stanford’s Lemley says that only the best of the patent bar will have the clout to cherry-pick the most lucrative contingency fee cases. Fledgling start-ups will also face new changes in patent law that could complicate big-ticket patent litigation, Lemley says, such as the Patent Reform Act of 2011’s restrictions against joining multiple defendants in one suit.

Then there’s the risk factor that might stop many comfortable big-firm lawyers from making the change. “When you jump out of an airplane,” Feinberg says, “you don’t know if your chute will open.”