ARE YOU LEVERAGING
ALTERNATIVE FEE ARRANGEMENTS?
Last week’s first cost-saving resolution involved better outside counsel management, which starts with improved or expanded use of Alternative Fee Arrangements (“AFAs”). To provide additional context on the topic, this week, we dive into AFAs a bit more deeply. How to Build a Strong Outside Counsel Management Program
What's an AFA?
For those new to AFAs, they are any fee arrangement with a firm that varies from the standard hourly rate.
AFAs aren’t new – they’ve been around for decades. Most large IP owners use AFAs as a way to control costs and improve budget predictability.
Adoption of AFAs with smaller and mid-size owners has been mixed, partially due to a lack of negotiating power and partially due to the challenges of implementing and managing an AFA program.
Alternative fee arrangements for IP
The 3 most common AFAs that we see IP teams leverage are:
- Fixed Fee – Flat fee pricing, popular for well-defined activities like drafting or office action responses.
- Capped Fee – Hourly rates, but, with a threshold on costs that can also result in lower costs if the effort is lower.
- Budget Based – Popular during IP litigation, requires pre-approved budgets for each phase of a matter’s lifecycle.
BENEFITS OF AFAs
AFAs help IP teams control costs by capping or limiting fees and improving predictability – a common challenge for IP budgeting.
If you have ever tried to rationalize the hourly costs in a service invoice, you will quickly understand the advantage of having a standardized, fixed fee for each service.
AFAs ARE INCREASINGLY POPULAR, BUT...
While AFAs are increasingly popular, a recent survey by ACC shows that only half of their respondents used flat or capped fees.
