Don’t do contingency deals with inventors

bailiiIP Draughts cannot praise highly enough the free case report service provided by BAILII here and the team of volunteers who created it – Laurie West-Knights QC, take a bow. It provides the raw material for many of the English case summaries that are included on this blog.

Some of the sections of the service tend to provide more fruitful reading than others.  After scanning the recent cases in the Court of Appeal, Chancery Division, Commercial Court, Technology and Construction Court, Patents Court, and Patents County Court, IP Draughts has little inclination to spend time in other areas.  Reluctantly, he looks sometimes at the general list of Queen’s Bench Division (QBD) are we nearly there yetcases.  Occasionally, an important commercial case is mis-allocated (in IP Draughts view) to the general list of this division of the High Court.

Going through the general list of the QBD this week, he stumbled upon Ford & Warren v Warring-Davies [2012] EWHC 3523 (QB), and became quite excited.  The case concerns an inventor of a heart monitor, called HeartSmart, who instructed solicitors to assist him in licensing the invention.  The solicitors were instructed on the basis that they would not charge for their work until the invention was successfully licensed, and would then recover their fees from the proceeds of licensing.  Oh-ho, very interesting, thought IP Draughts.  Not something he would do in a month of Sundays, although some people have tried to cajole him into doing so.  Let’s see how successful it was for another firm.

place your betsThe inventor nearly reached an agreement with some investors.  But the deal structure wouldn’t have involved any initial payments to the inventor that he could then use to pay his contingency fees.  So he needed to persuade his solicitors to waive or reschedule their fees, which had reached a figure in the region of £250,000.  They declined to do so.  The deal with the investors fell apart.  The inventor blamed the solicitors for losing the deal, and sued them.  Above is a link to the High Court’s judgment in the matter.  The inventor lost.

Part of the reason that the inventor lost was that he was out of time for bringing the case.  The usual time limit in the English system is 6 years from the breach of contract.  He brought the claim well after the expiry of this time limit.  The inventor’s counsel tried some legal arguments to get around the time limit, including an argument that there had been “deliberate concealment” by the solicitors, which would suspend the time limit.  These arguments failed.

IP Draughts is not particularly interested in the arguments about time limits.  He is more interested in the contingency terms that the solicitors offered to the inventor, and how the interests of the solicitors and the inventor diverged once a deal became imminent, to the point that, taking the first solicitors’ advice, the inventor instructed a second set of solicitors to advise him on his relationship with the first set.

best interestWho ultimately won the case is, from IP Draughts’ perspective, less instructive than the distortion and ultimate destruction of the relationship between solicitor and client that came from agreeing to the contingency arrangement.  How can a solicitor act in the best interests of his client (one of the primary duties of a solicitor in “normal” circumstances), if he has agreed a commercial arrangement where his business interests differ from those of his client?

IP Draughts accepts that there are other points of view on this issue.  Please comment on this posting if you have a different opinion.  For present purposes we are discussing transactional advice rather than litigation that is based on a contingency fee.  This could be a really interesting debate.

1 Comment

Filed under Commercial negotiation, General Commercial, Legal practice

One response to “Don’t do contingency deals with inventors

  1. Mark,

    Interesting issue. I get regular requests to “sweat” fees.

    It looks to me like it was six of one and half a dozen of the other in this case. The investors seemed not to want to accommodate the reasonable proposal from the solicitors so I would say the investors scuppered the deal. I think the solicitors foolishly got caught in the cross-fire between the other parties. The “painful exposure” observation made me laugh. That is what happens when you have a fool for a client. In this case the interests were aligned and then became confused and diverged. The investor to my mind did not walk away because of the solicitor’s intransigence I suspect other motives reading the case. If the six years had not been missed it would have been great to have seen the debate on this issue.

    I agree that total contingency is daft in these situations. They should have mixed it up. If the client can’t afford even basic fees then it’s just tough luck. In this scenario the client picked the wrong investors, namely their solicitors. What a mess on the agreement and process management ; all looks a bit sloppy.

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