Big Firms and Contingency Fee Struggles: Parallel Networks v. Jenner & Block

by Dennis Crouch

Joff Wild at IAM has posted some interesting reading in the ongoing dispute between the patent assertion entity, Parallel Networks and its former litigation counsel at Jenner & Block. [Link]

According to the pleadings filed by Parallel Networks in Texas state court[link below], Jenner withdrew from its contingency-fee representation of Parallel Networks against Oracle after losing on summary judgment and determining that it was unlikely to win a large award. Parallel Networks then found new counsel and eventually settled the case for about $20 million. Once that case ended, Jenner returned asking for more than $10 million in attorney fees based upon its hourly rates through summary judgment.

Under the representation agreement, both parties had agreed to arbitrate any dispute over fees and an arbitrator awarded Jenner with a $3 million fee. Parallel Networks has now asked the court to set aside the arbitration award – arguing that under Texas law, a contingent fee attorney cannot drop its client simply for economic reasons and then expect to receive any further compensation. The suit also alleges a host of other problems with Jenner & Block representation in both the Oracle litigation and the parallel case against QuinStreet. The bulk of those allegation stem from various internal communications at Jenner involving the risk and potential of the cases that were never communicated to Parallel Networks.

The lawsuit will be interesting to follow because it offers a rare public glimpse inside big-firm contingency fee structures and the associated political struggle raised by many risk-averse firm leaders. Here, that attempted risk aversion may well cost the firm several million dollars in fees.

I should note that Professor David Hricik testified on behalf of Parallel Networks in the Arbitration.  Hricik is on leave from his Patently-O writing as he clerks at the Federal Circuit. I have not spoken with him about this case. –  Dennis

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19 thoughts on “Big Firms and Contingency Fee Struggles: Parallel Networks v. Jenner & Block

  1. “..and take the chance of having to appeal a verdict from a jury of Texans”?

    MM, you went to the time and trouble in your 10:31 comment to cut and paste from the Court’s order. Did you notice that the order was from Judge Robinson in u.S. DISTRICT COURT FOR THE DISTRICT OF DELAWARE. Oracle v Parallel Networks was in Delaware, not the Eastern District of Texas (which is what I presume your comment about a “jury of Texas” implied).

    As regards your other point: $20 million is a lot of money to anyone (even Oracle). The point, howver, is that no one – not Oracle, or any other company that I’m aware of, pays $20 million to settle a case they think “s*cks” (your word, not mine). In other words, Oracle paid up (if that is indeed the correct number) because they had real risk, not because they simply made a nuisance type settlement to make the case go away. And what I mean by “risk” is that the plaintiff’s case had some merit according to Oracle’s calculus that they should pay $20 million (or whatever they paid) instead of running the gambit of a trial.

  2. I’m pretty sure that Oracle didn’t settle for the amount of money noted in Dennis’s posting about this case because Parallel Network’s case s*cked…

    I’m pretty sure you’re wrong. You think $20 million is a lot of money to Oracle? Especially relative to the amount it would cost to litigate the claims and take the chance of having to appeal a verdict from a jury of Texans? See my 10:31 comment.

  3. MM, your statement makes no sense. I’m pretty sure that Oracle didn’t settle for the amount of money noted in Dennis’s posting about this case because Parallel Network’s case s*cked or because Oracle was making a nuisance value settlement.

  4. Why a firm retained on contingency should reasonably expect compensation for its actual time spent on the case, when the firm left the case for dead and didn’t even see it through on the merits, is beyond me.

    What’s amusing, however, is that Jenner is playing the same game with their former client that they both played together against Oracle: “yes, our case s*cks but that doesn’t mean that we have no chance of winning and besides wouldn’t you be happier if you just paid us off and we left you alone?”

  5. I am confident that they did not forget about the 10,000,000 dollars worth of uncompensated time.

    No, I’m sure they didn’t forget. But I’m equally sure they weren’t expecting to see any money for that time, until someone saw that the client went on to win the case, and put two and two together.

    I haven’t reviewed the exact wording of their contingency fee arrangement, but I would expect there’s some kind of unwritten understanding of “we only get paid if we win you this case”, and “our pay depends on how much we get for you”. That’s the risk that clients understand their contingency fee lawyers to be taking. Why a firm retained on contingency should reasonably expect compensation for its actual time spent on the case, when the firm left the case for dead and didn’t even see it through on the merits, is beyond me.

  6. the law firm put thousands of hours into the case.

    Which I’m sure they promptly wrote off once they gave up on the case and dumped the client.

    At least, until someone saw that the ex client won a lot of money, and thought “hey, didn’t we represent them in this case at some point?” And then, “hey, didn’t we represent them on contingency?”

  7. “a contingent fee attorney cannot drop its client simply for economic reasons and then expect to receive any further compensation.”

    It would seem like a windfall…

  8. I can’t say I feel pity for for Parallel Networks or their previous firm, Jenner. What is the phrase? “They deserve each other.” Hopefully they will both continue to lose money as a result of their lovely arrangement.

    Here’s a taste from the District Court after the Federal Circuit’s remand:

    Oracle filed requests for ex parte reexamination of the ’335 and ’554 patents on March 29, 2007. On June 30,2008, the PTO issued an office action rejecting all 11 claims of the ’554 patent and, on August 22, 2008, issued an office action rejecting all 29 claims of the ’335 patent as invalid over multiple prior art references. In response, Parallel filed responses to the office actions in which it attempted to distinguish the ’554 and ’335 patents over the cited art and, additionally, added 270 new claims to the ’554 patent and 155 new claims to the ’335 patent, totaling 425 new claims. The PTO issued final rejections on March 30, 2009 (in the ’335 patent reexamination) and April 29, 2009 (in the ’554 patent reexamination).

    Parallel filed its Notice of Appeal in the ’335 patent reexamination on June 30, 2009 and in the ’554 patent reexamination on August 31,2009. Both briefs were rejected as nonconforming with the PTO’s rules; corrected briefs were filed on November 16,2009 and January 14, 2010, respectively. Parallel has petitioned the PTO for the entry of several after-final rejection amendments in each reexamination. Its original requests in this regard were rejected by the examiners.

    …It is Oracle’s contention that Parallel has engaged in a strategy of delay with respect to the concurrent reexaminations. Parallel has: (1) added 425 new claims to the reexaminations; (2) in one instance, missed a response deadline, resulting in a six month delay in prosecution; (3) improperly filed its appeal briefs, causing further delay; and (4) continues to pursue the entry of amendments following the final rejections issued in each reexamination. In view of the foregoing, Oracle asserts that a stay will not effectuate undue hardship on Parallel. (D.1. 428 at 6-7)

    The court agrees that Parallel’s conduct, most notably, adding 425 new claims to the reexaminations and pursuing post-final rejection amendments on appeal, is inconsistent with any notion that Parallel desires to expedite (or focus) the PTO’s review of its claims on reexamination. … Parallel’s claim that a stay of litigation effectuates undue hardship, notwithstanding its own delay of the resolution of the validity of the originally-issued claims in this manner, rings hol-low.

    Great system we have here.

  9. “. . . Paul Margolis (a Jenner partner) is talking about how strongly the appellate team feels about the merits of the appeal and a few days later, Paul Margolis is telling the client that its more likely the SJ ruling will be upheld. Incredible behavior compounded by Jenner’s greed in pursuing this type of claim.”

    Good grief. That violates about every cannon and code of conduct. So much for CLE ethics.

  10. iwasthere, you’re on point.

    See Hoover Slovacek v Walton (Texas Supreme Court, 2006)

    “When interpreting and enforcing attorney-client fee agreements, it is “not enough to simply say that a contract is a contract. There are ethical considerations overlaying the contractual relationship.” Lopez v. Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 868 (Tex. 2000) (Gonzales, J., concurring and dissenting).

    In Texas, we hold attorneys to the highest standards of ethical conduct in their dealings with their clients. The duty is highest when the attorney contracts with his or her client or otherwise takes a position adverse to his or her client’s interests. As Justice Cardozo observed, “[a fiduciary] is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” Accordingly, a lawyer must conduct his or her business with inveterate honesty and loyalty, always keeping the client’s best interest in mind.

    Id. at 866-67 (alteration in original) (citations omitted). The attorney’s special responsibility to maintain the highest standards of conduct and fair dealing establishes a professional benchmark that informs much of our analysis in this case.”

    When Jenner entered into this fee agreement, it was ethically required to put the clients interests ahead of its own. Take a look at the two exhibits. In the first one, Paul Margolis (a Jenner partner) is talking about how strongly the appellate team feels about the merits of the appeal and a few days later, Paul Margolis is telling the client that its more likely the SJ ruling will be upheld. Incredible behavior compounded by Jenner’s greed in pursuing this type of claim.

  11. This is the tension in lawyer contracts. Some see lawyer representation contracts as having a special role in the justice system – and therefore need to be governed by the trump law of the rules of ethical conduct and case law. Others view lawyers as commercial actors – and therefore get the benefit of contract law with literal construction of the contract/representation provisions. Having been on both sides of these arrangements – i am in the special relation camp. Once the representation starts – the power in the relationship shifts to the lawyers – in ways that no other contract arrangement does. Note how the lawyers used information obtained by the representation – to the detriment of the client when Jenner made the roi calculations to terminate the representation. BTW $10 million thru summary J on two patents??? Wow Jenner associates can really park the hours.

  12. That would help small fry in getting representation from big firms.

    … and keeping that representation all the way through to summary judgment.

  13. It is difficult to get a court to set aside an arbitration award. The Federal Arbitration Act controls and indicates four reasons for setting aside an award: 

    (1) where the award was procured by corruption, fraud, or undue means;

    (2) where there was evident partiality or corruption in the arbitrators, or either of them;
    (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

    (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

    9 U.S.C. §10(a).

  14. That would help small fry in getting representation from big firms

    The kind of help that is evident here ?

    Thanks, but no thanks.

  15. I have no idea who is going to win this, but it’s puzzling to me when I see a losing party in arbitration try to set aside an award on the ground that the arbitrator got it wrong on the law. What was the point of the arb. clause and proceedings if that is a legitimate reason to start over in court?

  16. Big firms risk adverse?

    I think so, but what I think is more likely is that they know how to make money. They do the math. They probably do not want to throw money down a rat hole.

    That being said, a ruling that a firm can jump ship and still make money from a case would significantly reduce the risk of big firms taking the case in the first place. That would help small fry in getting representation from big firms.

    So, there has to be some middle ground so that the patent owner and new counsel have room to make some money as well.

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