In a world where most law firms and their clients are friends, IP boutique Finnegan, Henderson, Farabow, Garrett & Dunner and construction equipment giant Caterpillar Inc. are blood brothers. Over the past six years, Caterpillar and Finnegan have established a uniquely entwined attorney-client relationship. Finnegan lawyers have access to Caterpillar's internal e-mail directory, Caterpillar in-house counsel train young firm assoÂciates, and Finnegan lawyers attend Caterpillar's closed business strategy meetings. Even stranger, both sides say there's rarely bickering at the annual negotiations over fees.
The trick to their happy union is commitment. Finnegan is Caterpillar's sole patent prosecutor, writing almost 1,000 patents for the Peoria, Illinois-based company over the past seven years. In return, the firm agrees to go off the hourly clock and bill a fixed fee. The relationship works, according to lawyers on both sides, because they've developed a highly efficient and close-knit patent-writing process.
Caterpillar and Finnegan aren't the only ones who have adopted an alternative billing scheme. A small but growing number of companies, including Cisco Systems, Inc., and Pitney-Bowes Inc., are convincing their law firms to accept a fixed-fee billing structure, but those deals are typically for commercial litigation, employment law, or small M&A deals.
Caterpillar first started questioning its legal billing strategy in 2000. At the time, roughly 15 law firms wrote the company's patents. A new firm the company wanted to test might get ten patents. A personal friend of an in-house lawyer would get a patent or two. Long-term hiring decisions were based almost solely on price. "I didn't know where cases were going," says deputy general counsel William Heming, who heads up the IP department. "You reach this frustration level because you don't have control."
Caterpillar wanted to increase its filings, but their price-based patent system made quality control near impossible. In-house lawyers spent their days fixing poorly written patents. Essentially, the company got what it paid for. "Putting anyone on a [too tight] budget like that drives danger," says Heming.
The company decided to switch to a preferred provider approach, trimming down the number of law firms used by the entire company to about a dozen. Heming conducted a talent search for a patent prosecution firm willing to work with the company's new model. The company evaluated over a dozen law firms, quizzing them on their culture, training program, and IP expertise. Heming personally examined patents written by the firms, pulling batches off the PTO Web site.
After a daylong interview at the company's headquarters, Finnegan won the contest. The firm promised to establish a specialized team to handle all things Caterpillar at the firm. Today, the "Cat team" includes roughly 30 lawyers, patent agents, and law students who make Cat matters their top priority. The team handles the vast majority of Caterpillar-related work.
The innovative legal engineering began at the end of the first year. Finnegan partner Christopher Isaac and associate general counsel for IP Dennis Skarvan spent two days in a billing war room, charting every charge on a white board. Finnegan had filed 59 Caterpillar patents over that year. Isaac and Skarvan categorized these by type, complexity, and work hours. The goal was to create an improved work process for both sides. By increasing efficiency, Skarvan and Isaac believed they'd cut costs.
The two emerged with a key realization: There's cash in consistency. If Finnegan knows exactly when it gets the invention disclosures, it can better manage its work flow. If the same Finnegan lawyers always handle the same types of technologies, they will become faster writers. And if the Caterpillar lawyers file a clear invention disclosure early, it will save Finnegan hours.
At the beginning of each year, the company plans and schedules all its filings. "We had to commit to a steady volume of predictable work," says Skarvan. Finnegan lawyers attend some of the company's confidential R&D and strategy meetings, so they know what types of technologies are in the pipeline.
The average Caterpillar patent lives a highly structured life. After the patent is captured (usually in a formal invention session attended by engineers and lawyers), the Caterpillar lawyer opens a docket. An in-house lawyer assesses the case, approves it for filing, and on occasion even directly assigns it to the Finnegan lawyer with expertise in that technology. Then the in-house lawyer and firm lawyer review an 11-point checklist covering prior art, strategy, and the type of protection needed. Finnegan writes the patent, calling and e-mailing the inventor directly to clarify any questions about the technology. Finally, Caterpillar reviews the work and sends it off to the PTO.
In total, the time spent to get the application ready for the PTO averages a speedy six months, compared with the 14 months it took before the partnership. A Finnegan lawyer spends 40-50 hours and the Caterpillar attorney four hours per patent. Finnegan lawyers visit Caterpillar's offices at least once a month, where they attend invention sessions and meet with engineers at the plants. The firm also has access to Caterpillar's docket of patents, allowing them to manage about four to six months of patents at a time, rather than just work on their immediate assignments. This year, Caterpillar expects to file 530 patents, almost ten times as many as it did in 2001.
"I think many of [Caterpillar's] inventors don't know for sure which one is the Finnegan attorney and who is a company attorney," says Isaac. "They just think all lawyers are the same," quips Caterpillar's Skarvan.
But Caterpillar inventors get reputations among the lawyers that extend far beyond Cat's walls. Mentioning certain Cat engineers elicits groans from both sides of the legal team. They know which inventors are a breeze to work with and which ones are almost impossible to understand.
Occasionally, when Cat loses a good in-house lawyer, a Finnegan attorney will fill in by flying out to Peoria for two or three days a week. In general, however, there's very little permanent crossover between the company and the firm. So far, only one lawyer has moved in-house from Finnegan. "Attorneys at the firm generally aren't looking for the same experience as in-house," says Isaac.
But over the years, the relationship has grown. Higher-level Cat team members at Finnegan now train lawyers at the foreign law firms hired by Cat. Finnegan also handles Cat's complex reissues, reexaminations, and prelitigation work. (Howrey is the company's primary U.S. litigation counsel.)
Neither side will disclose the financial details, but both are pleased. They shy away from classifying their relationship as fixed-fee, preferring to call it a fair fee. Skarvan says Caterpillar is getting a good value at a discounted price. And Finnegan doesn't feel that it is pushed into doing more than it can afford. "If you work together, you can get patent applications that are much less expensive then they otherwise would be," says Isaac. "Caterpillar gets high quality, and we make the same amount of money-it's just done efficiently."
