Budgeting is a regular and important part of any business activity. The same is true with litigation of any kind, and IP litigation in particular. This article briefly discusses some basics of IP litigation budgeting and what a client can do to make IP litigation budgets more accurate and reliable.
First, what is a budget? For IP litigation purposes, it is an estimated projection of client expense for legal fees and other expenses in out-of-pocket dollars and over time. Budgets can be for an entire case, a case task, or a calendar period. Law firm generated IP legal budgets do not normally include non-cash costs to the client such as opportunity costs for executive distraction, possible negative impact of the case on the marketplace, and the like. Non-cash costs in IP litigation can be very high — the same or more than cash expense — and should be considered by the client with counsel.
Like all budgets, IP litigation budgets must be reviewed on a regular basis with a clear understanding that accuracy of the budget will increase as the amount of known information increases and the budget period shortens. A one-month budget for work done six months into the case will be much more reliable than an overall "what will the case cost me" budget made six months before filing the complaint. Every client should insist upon and actively participate in regular budget review. Review and comparison of actual performance to budget can reveal variances that might indicate inefficiency or, more likely, changes in circumstances within the case.
Budget review is particularly important in the last two or three months of a litigation. Case cost burn rate tends to increase, sometimes rapidly, in the period just before trial. For instance, in one recent case, the plaintiff went into the month before trial believing that it was confronted with no non-infringement defenses and a weak obviousness defense. During that month, a completely new non-infringement defense was raised and an unexpected anticipation defense thrown into the mix. These were dealt with, but the cost of doing so had not been budgeted and was substantial.
IP litigation budgets basically are constructed by reference to five sources of information:
a. Client goals for the case
b. Law firm and lawyer experience with litigation costs for cases of this type
c. External sources of experiential information such as the American Intellectual Property Law Association Economic Survey
d. Tasks expected to be performed during the case
e. Case timeline
Of these, client goals is the most important. For example, a patent infringement defendant client with an alternative technology readily available to substitute for the accused one likely will generate legal expenses less than one wedded to a technology because of strong commercial need. Changes in client goals during the case inevitably lead to increased expense.
Counsel's personal experience with other cases of this type and that of his or her colleagues will be an invaluable component to estimating both short-term and long term budgets. For example, some opposing counsel are more litigious than others, some easier to deal with; some technologies tend to have expensive experts, some have less expensive experts.
The AIPLA Survey can be an invaluable tool for obtaining a 5,000 foot view of IP litigation cost. The AIPLA collects data on actual litigation costs and publishes it in the form of condensed tables showing cost through discovery and cost through trial on average by geographic area and amount at stake. The AIPLA Survey is not a substitute for the other techniques discussed here, but it provides a very useful grounding for any IP litigation budget process.
Task-based budgeting is the classical tool for building a budget. Task-based budgeting breaks the case down into smaller activities over shorter periods of time, thereby making it easier to generate more reliable estimates of costs. Successful task budgeting requires that the tasks be known accurately. That can be difficult to do. No matter how carefully the original task budget is assembled, at the end of the day, it is rarely 100 percent accurate. Testing a task budget against counsel experience and the AIPLA Survey are helpful ways to improve its accuracy. All budgets need careful client/counsel reviews on a regular basis.
Interestingly, one of the most reliable indicators of case expense is the amount of time from filing the complaint to verdict. The less elapsed time there is, the less the case usually costs — for a couple of reasons. First, time limitations limit the amount of work that can be done. Second, long cases tend to have delays during which client, counsel, and witness focus is lost, requiring relearning of previously digested issues. Even worse can happen in a long case. In one recent example, the chief witness responsible for carrying most of the load in the case became incapacitated. Reconstructing his role took four new witnesses to prepare and many hours of counsel time in planning, all with large unbudgeted cost.
No matter how carefully the five budget sources are used, no budget will be satisfactory unless client and counsel understand the assumptions and expectations that went into the budget. Aligning client and counsel expectations can sometimes be a challenge. The key to an IP litigation budget that truly meets client needs is frequent and regular review of the budget, how it was constructed and how well it is predicting the case as it moves along.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
