Microsoft finds a low-cost window to battle those pricey pirates

Microsoft doesn't take piracy lightly. Last year the software giant filed dozens of lawsuits against counterfeit software makers. And with few exceptions, they were, like most piracy cases, similar and predictable.

That's why piracy cases are ideally suited for alternative fee arrangements with outside counsel, says Microsoft senior attorney Mary Jo Schrade. So about a year ago, Schrade approached lawyers at Seattle-based firm Perkins Coie about handling the company's piracy cases for a flat fee. "We thought this would be a perfect place to start," Schrade says.

They agreed to a flat fee, per-case arrangement, based on the prediction that the firm would handle 40 cases in Microsoft's 2009 fiscal year, which ended on 30 July. And that's exactly how many cases Perkins Coie handled. In the end, everyone liked the arrangement so much, they're doing it again this year, Schrade says.

One of the trickiest things about setting the flat fee was predicting how many cases Perkins Coie would handle. Schrader looked at a wide range of case data over the last five years. As Perkins Coie had been working for Microsoft since 2002, their lawyers had the same information.

They looked at such issues as the types of cases, how much they cost, where they were filed, and when. Then they came up with a mutually agreed-upon number. "It was fair on both sides," Schrade says. "I didn't feel we were asking them to take huge cuts or unnecessary risks."

More and more of Perkins Coie's clients want to do the same thing, says partner Susan Foster. About 80% of the work she does for corporate clients now is at least discussed as an alternative fee proposal, she says. What all her clients want most is predictability. So the firm's arrangement with Microsoft "is a perfect paradigm for when an alternative fee works," Foster says. The firm has a history with the company, which means lawyers know what their in-house clients want, and how to give it to them.

And it also helps that Microsoft's general counsel, Brad Smith, has embraced the alternative fee movement. The world's largest software company has had several versions in place for the last five years. Some are fixed flat fees. Some are tied to a specific phase of a legal matter. And some are a combination of fixed fees and a bonus. But there are a lot more such arrangements in place since the current recession began, Smith says.

This year, 45% of Microsoft's outside counsel fees will be paid under alternative arrangements. Next year, Smith hopes, half will be. "I don't think there will be any going back after that," Smith says. "The changing economy has opened people's eyes."

This article first appeared in Corporate Counsel, a US sister title of Legal Week.

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