Justin Miller, Corporate Counsel for DuPont Legal, is not your typical in-house attorney. And, DuPont is not your typical corporate client. Miller is young, bold and happens to have a knack for structuring alternative fee agreements that keep corporate clients and outside counsel happy, informed and motivated. DuPont Legal has transformed the inside/outside counsel relationship and blazed the trail for "partnering" relationships between corporate clients and their outside law firms.

DuPont’s Coumadin® litigation dramatically illustrates how DuPont and its outside lawyers have broken through traditional barriers to create an environment in which alternative fees can thrive. Coumadin® is a popular blood-thinning drug that was developed and marketed by DuPont’s former pharmaceutical division.

The litigation arose from charges that DuPont Pharmaceuticals had attempted to block generic drugs from competing with Coumadin®. Miller, who was responsible for managing the defense, had a challenge on his hands. According to a recent article about the case:

Attacks and allegations were nationwide, on state and federal levels and in the form of regulatory and legislative proceedings, as well as antitrust, consumer-deception and class-action suits. It would take a concerted effort for DuPont to emerge from this process healthy. Miller was brought in to "look at the problems and figure out how to solve them."

Miller’s first step was to approach senior pharmaceuticals executives and convince them that he was dedicated to solving the problem from both the legal and business perspectives. This was particularly important because Miller, who had not previously worked with the pharmaceuticals business, recognized two critical facts:

1. Coumadin® sales accounted for nearly 70% of DuPont Pharmaceuticals’ gross revenue; and
2. Every new dollar in Coumadin® sales could result in $4 in legal losses (treble damages plus plaintiffs’ attorneys’ fees.)

Miller also promised to make the litigation costs transparent and predictable so that senior executives would always know how much they were spending at any given moment. Through his bold words and actions, Miller made believers out of senior management. In return, they gave him full authority to manage the litigation the way he saw fit.

Miller’s next step was to build a strong team and establish clear roles for each member. This meant restructuring the existing team—both inside and outside the law department—and selecting a handful of outside firms to handle litigation in specific locations or to perform specific functions. The firms Miller selected: Bartlit Beck Herman Pelanchar & Scott; Boies Schiller & Flexner; Crowell & Moring; Gray Cary Ware & Freidenrich; and Potter Anderson & Corroon, proved to be a winning combination.

The glue that bound this winning combination, according to Miller, was an alternative fee structure that "rewarded firms for communicating well with each other and sharing their best work." The alternative fee arrangement shared risk between DuPont and its outside law firms and rewarded each firm generously for achievements in their assigned cases and for contributions to cases assigned to other firms.

For example, DuPont allocated by specific percentages a firm's bonus pool according to specific case responsibilities and a shared work category. The shared work allocation created a powerful incentive for firms to share ideas and to provide resources for cases outside their daily responsibility. It also resulted in each firm having a stake in seeing the others succeed. Thus, a typical fee agreement was split as follows:

• X% for cases in which the firm had lead responsibility;
• Y% for cases in which the firm shared responsibility; and
• Z% for all cases combined (never less than 20% of total compensation).

But firms also had money at risk. In one scenario that typifies the structure, Miller worked with the firms to establish a fixed monthly dollar amount as the outside counsel budget during a six-month active discovery period. The firms and Miller agreed that the firms would only receive 70% of that budget per month and that remaining 30% would be held back by DuPont. "The [30%] ‘holdback’ was an incentive for the firms to work on what really mattered to me," Miller said. "The holdback made the firms efficient and there was no need for micromanagement—the fee structure rendered the focus."

In return for their assumption of risk, Miller offered the firms an opportunity to win back the 30% plus a multiplier of up to three times that figure based on Miller’s discretion. The payback was phased and the timing depended on the circumstances of each matter. "Defeating certification of a national consumer fraud or antitrust class was a critical issue for DuPont, so we offered a six-figure milestone payment to the first firm that defeated class certification," said Miller. "Typically, however, we paid bonuses only for outright wins that reduced the size (and risk) of our docket. The key was to tie the payout to the time of the engagement when the stakes were the highest for our corporate client."

"We had great lawyers who were also good businesspeople," Miller said. "They quickly understood they could earn more money through close cooperation and risk sharing." Trust was also critical. According to Miller, "Sometimes we would be under budget and sometimes we would be over budget, but we were all flexible and made adjustments when necessary." The result: DuPont didn’t just minimize its losses, it built a $50 million profit center through a creative settlement that could only be made by a team with a deep reserve of industry knowledge and business acumen.

The experience on the Coumadin® case has helped Miller and the outside firms to become even more responsive to business needs and creative in the way they address them. In addition, several of the firms have used the success of the DuPont team approach to develop additional business with non-DuPont clients.

While the billable hour is firmly entrenched in the day-to-day practice of law, the use of creative alternatives continues.

In broad strokes, the Coumadin® story demonstrates how in-house counsel and outside lawyers can use creative pricing to achieve successful results and strengthen their relationships in the process. It also shows that even complex, high exposure litigation lends itself to alternative fee agreements. In fact, these agreements can drive bottom line results as well as efficiency and collaboration among outside firms. Finally, the Coumadin® story illustrates how firms and corporate counsel can leverage their success to win new business and advance in their careers.

Say what you will about the alternative fee, but it just might be your best client development tool.